Bank Negara maintains benchmark interest rate at 3.25%

PETALING JAYA: Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) unchanged at 3.25% at its Monetary Policy Committee meeting yesterday, the first held after Datuk Nor Shamsiah Mohd Yunus took over as governor on July 1.

The central bank said in a statement that the degree of monetary accommodativeness at the current level of OPR, is consistent with the intended policy stance, taking into account monetary and financial conditions.

However, BNM cautioned that the intensification of global trade tensions could affect sentiments and weigh on trade, investment and consumption.

“Coupled with ongoing monetary policy normalisation in the advanced economies, shifting investor expectations and sentiments could lead to further capital outflows and financial market adjustments in some emerging economies.”

For the Malaysian economy, BNM saw continued expansion in the first half of 2018, supported by private sector activity with additional impetus from net exports. “The positive growth performance is expected to be sustained, driven by both domestic and external demand.”

According to BNM, private consumption will be underpinned by continued wage and employment growth, with an additional lift from higher household spending due to the tax holiday.

Meanwhile, investment activity is projected to be supported by capacity expansion especially by the export-oriented industries and ongoing infrastructure projects, particularly in the transport and utilities sub-sectors.

BNM foresees the external sector to continue to benefit from sustained global growth momentum, with the growth outlook to be further supported with greater certainty in domestic policy in the coming months.

“Overall, the Malaysian economy is expected to remain on a steady growth path.”

BNM expects headline inflation for 2018 to be lower than the earlier forecast after taking into consideration the impact of recent policy measures on domestic cost factors.

“The impact of these measures on inflation however, is transitory. Headline inflation is likely to turn negative in some months and remain low in the first half of 2019 before trending upwards as these transitory effects lapse. Core inflation is nevertheless expected to remain relatively stable in line with sustained domestic demand.”

The central bank opined that Malaysia’s fundamentals will continue to be supported by positive domestic economic outlook, sound financial sector and improving current account surplus of the balance of payments.

“Domestic financial markets have remained resilient despite non-resident portfolio outflows. The ringgit exchange rate would be more reflective of the underlying fundamentals of the economy, when the external and domestic uncertainties recede.”

Amid positive direction of economic indicators, MIDF Research maintains its baseline view of a one rate hike in 2018.

“We expect domestic economy will continue to expand at a moderating pace this year. Hence, we maintain that Bank Negara will keep the OPR unchanged for the rest of 2018. However, future developments in both internal and external fronts will determine the upcoming outlook of Malaysia monetary stance.”

FXTM global head of currency strategy and market research Jameel Ahmad said trade war remains the major concern for the local market for the time being, and it is difficult to gauge if Bank Negara will keep the OPR unchanged at the current till year-end period.

“Trade war is the biggest risk to the global economy and the central banks might be more negative over the medium term.”