This article first appeared in EdgeProp.my, on July 10, 2019.
Source: EdgeProp.my / Wan Suhaimi said there is no heightened concern that global growth is on a sharp downtrend requiring BNM to tweak its OPR.
KUALA LUMPUR (July 10): Bank Negara Malaysia's (BNM) decision to keep the Overnight Policy Rate (OPR) unchanged at 3% is not a surprise move as it has been widely anticipated and the rate will remain at that level until year-end, experts say.
They said the recent cut by 25 basis points (bps) in May was one of the reasons why the rate is kept unchanged as it is sufficient to boost economic growth particularly domestic demand.
Rakuten Trade Sdn Bhd vice-president of research Vincent Lau said the central bank would likely not make any adjustment for the rest of the year unless the economy deteriorates further and the US Federal Reserve decides to cut their rates.
Kenanga Investment Bank Bhd head of economic research Wan Suhaimi Wan Mohd Saidie said there is no heightened concern that global growth is on a sharp downtrend requiring BNM to tweak its OPR.
“I expect no change (for yesterday's decision), but BNM still has scope to cut interest rates if the Fed decides to cut more than once this year and the domestic economy continues to weaken,” he told Bernama.
Earlier, the central bank's Monetary Policy Committee (MPC) in its meeting decided to maintain the OPR at 3% as latest indicators point towards sustained economic expansion.
In a statement, it said while the external sector’s performance is likely to be weighed down by slower global growth and trade tensions, economic growth will be supported by domestic demand.
“Household and capital spending will continue to be driven by stable labour market conditions and capacity expansion in key sectors such as manufacturing and services. The baseline projection remains within the range of 4.3% to 4.8%.
“This projection, however, is subject to downside risks from ongoing uncertainties in the global and domestic environment, worsening trade tensions and extended weakness in commodity-related sectors," it said.
Meanwhile, MIDF Research said it believes no further change in monetary stance is required at this juncture as long as the gross domestic product growth is more than 4.0 per cent and the core consumer price index is still positive.
In addition, the Fed has signalled a possible rate cut at least once this year.
“Since there will be less pressure from both domestic and external fronts, we anticipate that Bank Negara will maintain the OPR at 3.0 per cent for the rest of 2019,” it said in a note.
However, another research house, OCBC Treasury Research, did not rule out additional cuts for this year if growth risks worsen.
On the other hand, Vanguard Markets Pte Ltd managing partner Stephen Innes said with uncertainty over the Fed’s direction, it makes sense to keep options open and allow more policy wiggle room when domestic demand is set to weaken in 2020 due to weak services wage growth and a likely contraction in fiscal spending
“A rate cut in this environment could unnecessarily trigger a weaker ringgit, which is not a great idea when local capital markets are getting some traction.
“Malaysia's exports are still expanding, and foreign direct investment remains stable, so there is no immediate need to cut interest rates as the Malaysian economy remains resilient after the BNM proactively decreased interest rates in May,” he told Bernama.
He predicted BNM would cut the OPR in late 2019 as a preventative measure to lessen the expected downturn in 2020.
BNM would also have more policy wiggle room after the Fed’s rate cuts, he explained.
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