No change in Bank Negara's benchmark rate expected for rest of year

PETALING JAYA: Analysts maintain their views that there will be no change in Bank Negara Malaysia’s Overnight Policy Rate (OPR) for the rest of the year despite the recent strong data for exports, manufacturing output as well as sales.

AmResearch said the recent data failed to convince the research house to revise upwards its 45% probability for a 25 basis-point rate increase in second half 2017, partly due to the weak Nikkei Malaysia Manufacturing Purchasing Managers’ Index in June, which showed a drop in the output, new orders and approved business.

It also noted that applications for business loans have been in the negative growth trajectory since March 2017, which explains why companies are streamlining their stocks as reflected by the drop in inventory purchases, suggesting the underlying demand may not be as strong as envisaged.

Meanwhile, HLIB Research noted that Bank Negara said the recent improvement in financing growth is consistent with the pace of economic activity while banking system liquidity remains sufficient. The research house said this signals that the central bank prefers to leave the OPR unchanged as the improvement in growth comes from a low base while core inflation is expected to remain contained.

HLIB Research is maintaining its forecast for gross domestic product growth to remain favourable but at a more moderate pace in second half 2017 given the ebbing of low base effect, with expected full-year growth of 4.9%.

It said the tone of the latest Monetary Policy Committee meeting was more optimistic on global growth and its spillover to the domestic economy.

“On growth prospects, BNM noted that growth was better than-expected as stronger exports facilitated the improvement in domestic demand. Given the robust external sector, growth in the subsequent quarters will be driven by sustained export performance and its spillover to domestic demand,” it added.

On headline inflation, HLIB Research expects it to moderate in the second half of the yar as the impact of base effect ebbs.