To cut or not to cut?

PETALING JAYA: All eyes are on Bank Negara ’s () monetary policy tomorrow – whether there will be an interest rate cut amid weak economic outlook.

OCBC Bank believes the may wait to monitor the situation a bit longer before making a decision to cut, especially with the return of US- trade tensions and strength.

“Overall, we retain our expectations that BNM may only cut as early as July 2019 rather than the upcoming May 2019 meeting,” it said in a research note today.

AmBank Research concurred, saying that while noises that BNM may cut the Overnight Policy Rate (OPR) have gained traction, it opined that the central bank will most likely hold the rate in May and institute a rate cut in July.

OCBC said a major concern that may underlie BNM’s decision to cut could be regarding the growth situation as the Industrial Production Index for Q1 has been on a decline and it has usually been reflective of weaker GDP growth to come.

“However, the question then becomes the extent to which BNM primarily puts its focus on growth when adjusting the OPR. Historically, this has tended to be the case as a cut would follow a period of slowing growth or a hike similarly would come after some time of robust strong expansion.

“Furthermore, with the government undertaking fiscal consolidation, tools to stimulate the economy are limited. Externally, there is also now the higher risk that the possibility of any form of a near-term resolution on the US-China trade tensions may not materialise.”

BNM has maintained the OPR at 3.25% since 2018.

Meanwhile, Malaysia’s gross domestic product (GDP) growth could fall below 4% to a low of 3.8% in the first quarter (Q1) this year given the persistent contraction in exports.

AmBank Research expects Q1 GDP to hover between 3.8% and 4.2% based on its preliminary estimation following less exciting trade numbers. Last year, the local economy grew 4.7%.

HLIB Research expects the decline in global PMI manufacturing will continue pending developments in the US-China.

“Closer to home, Malaysia was also negatively affected with exports recording a decline (-0.9% year-on-year (yoy)). Nevertheless, the larger drop in imports (-2.9% yoy) have led to wider trade surplus of RM37.4 billion (Q1 18: RM33.4 billion; Q4 18: RM34.8 billion) which indicates that net exports could contribute to overall Q1 GDP.”

Kenanga Research also believes that trade performance will remain relatively subdued, premised upon the yet uncertain outcome to the extended US-China trade nego-tiations and ongoing economic moderation in major global markets, including China, the European Union and the US. It is maintaining the exports forecast of 4-6% in 2019 against 6.8% in 2018.

“Along with an expectation of slower domestic demand, GDP growth will likely extend its slowdown into the Q2 to 4.2% from an estimated 4.4% in Q1, adding to our whole projection of a slower growth of 4.5%.”

Source: The Sun Daily

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