Bank Negara keeps OPR at 3.25%

PETALING JAYA: Bank Negara Malaysia (BNM) has maintained the overnight policy rate (OPR) at 3.25% after a two-day monetary policy committee (MPC) meeting yesterday, as predicted by most analysts.
The central bank pointed out that inflation had continued to stabilise as the effects of price adjustments for utilities and energy continued to diminish.
"Inflation is expected to remain relatively stable for the remainder of the year. Going into next year, inflation is projected to edge higher and is expected to be above its long-term average due to domestic cost factors.
"The absence of external price pressures and more moderate demand conditions are expected to mitigate the impact of these cost factors on the underlying inflation," Bank Negara said in a statement yesterday.
"The current stance of monetary policy remains supportive of growth. Moving forward, the MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation. The MPC will also continue to assess risks of destabilising financial imbalances.
However, BNM said adjustment on the rate could be taken depending on how new information will affect the assessment on the balance of risks.
"This is to ensure the sustainability of growth prospects in the Malaysian economy," BNM said.
According to BNM, Malaysia's economic activity has been supported by the continued growth in domestic demand and exports and going forward, domestic demand is expected to moderate but will remain the key driver of growth.
While private investment activity is projected to remain robust, private consumption is expected to moderate.
"Exports will continue to benefit from the recovery in the advanced economies and from regional demand, although its growth will be slower, partly reflecting the base effect in the second half of 2013. The prospects are for the Malaysian economy to remain on a steady growth path," it said.
In July, the central bank increased the OPR by 25bps, after maintaining it at 35bps for three years.
After the release of the second quarter 2014 real gross domestic product (GDP) data, some analysts said another OPR hike would be likely this month, with most pointing towards another 25bps hike.
MIDF Research, in its report on Wednesday, said it believed that BNM can wait before another hike given that the economy is already responding to some of the macro and macro-prudential measures instituted since 2010.
"With data on exports and IPI showing a much weaker-than-expected reading for July, the consensus now expects OPR to stay unchanged at least until before the next meeting scheduled to be in November. We expect OPR to remain unchanged until the end of 2014 before it will be hiked up again early next year to 3.5%," it said.
Hong Leong Investment Bank (HLIB) Research had also expected BNM to maintain the OPR as downside risk to growth outpaces inflation concern.
"We see no hurry to raise the OPR back to 3.5% given a not-so-favourable macroeconomic outlook amid absence of demand-driven inflation," it said in its research note yesterday.
HLIB Research maintained its 2014 full-year CPI growth forecast at 3.2%, taking into consideration the impact of the multi-tiered fuel subsidy mechanism that may be unveiled in Budget 2015 next month.
"We estimate that the impact of such a fuel subsidy mechanism is more or less equivalent to the impact of the previous fuel price hike in September 2013."
AmResearch expects full-year inflation to register a growth of 2.9% this year, should prices remain benign in the fourth quarter but assuming the government raises petrol pump prices by 30 sen per litre in October, November or December, full-year inflation is likely to register 3.2%, 3.1% and 3% growth respectively.
However, it expects consumer prices to escalate next year, especially from April 2015 onwards when the goods and services tax (GST) takes effect.