Real returns to remain positive this year: AmBank

PETALING JAYA: Real returns are expected to remain positive throughout 2018, hovering around 0.4% to 0.7% as inflation remains soft, said AmBank Research.
“Assuming Bank Negara Malaysia (BNM) maintains the Overnight Policy Rate (OPR) at the current 3.25% throughout 2018, and if we take into account a full-year average Consumer Price Index (CPI) of 2.8%, which is our base case, it translates into a positive real return of 0.4%. If we price in our lower end of the CPI to average at 2.5%, the real return would be around 0.7%,” it said in a report today.
AmResearch is looking at a 30% chance for another 25bps increase in the policy rate around September or December and if it happens, the positive real return will widen on average to around 0.7% to 1%.
The research house believes inflation will stay soft moving forward, mainly due to the high base effect.
“Besides, we expect the US dollar-ringgit to remain on a strengthening mode and hence should ease import price pressures and limit the scope of transfer pricing from producers to consumers.”
Meanwhile, PublicInvest Research expects the CPI (inflation rate) to remain tame for the rest of the year due to the smaller effect of global cost factors.
“A series of US interest rate adjustments will keep a lid on commodity prices. The CPI will also benefit from the high base effect, the full impact of BNM policy adjustment where marginal propensity to spend may be clamped, not to mention the positive impact of ringgit to imported goods. In sum, we expect CPI to average at 2.7% in 2018 with core CPI to remain benign at 2.1%,” it said in its economic update.
PublicInvest Research expects policy paucity for the rest of the year despite forecasts of a series of US interest rate adjustments and does not see any risks of financial imbalance given the less-than-exciting stock and property markets as well as tepid loan growth.
“Loan growth touched a disappointing 4.2% in January and is projected to remain flat in 2018. We also don’t see any obvious risks that could affect Malaysia’s growth potential in 2018 and therefore, cautiously predict policy status quo for the rest of the year,” it said.