Bank Negara expected to maintain policy rate at 3.25% for rest of 2018

PETALING JAYA: Analysts expect Bank Negara Malaysia (BNM) to maintain the Overnight Policy Rate (OPR) at 3.25% for the rest of the year despite the dovish tone of the latest Monetary Policy Statement (MPS).

Kenanga Research does not expect BNM to make any changes to its monetary stance based on the central bank's "less cheery" assessment on the economic prospect as well as a benign inflation outlook.

"Though BNM appears to be dovish, we reiterate our view that the OPR will remain on hold until the end of the year. Moreover, BNM has stated that despite the heightened financial market volatility, the domestic monetary and financial conditions remain supportive of economic growth," it said in its report yesterday.

On Wednesday, the Monetary Policy Committee (MPC) maintained the OPR at 3.25% and the statutory reserve requirement (SRR) rate at 3.50%.

In its statement, the MPC said the balance of risks to the outlook has tilted to the downside, and that the intensification of global trade tensions could affect sentiments and weigh on trade, investment and consumption.

"We feel that the tone of the latest MPS is dovish. While the committee continued to expect growth in the global economy, it stated that downside risks have risen. Nevertheless, the committee continued to anticipate Malaysia's growth to remain on a steady growth path, supported by domestic and external demand," said Hong Leong Investment Bank (HLIB) Research.

On inflation, BNM forecast price pressures to be more modest due to transitory factors.

Similarly, HLIB Research anticipates growth at a more moderate pace of 5.2% and inflation to be more modest at 1.8% this year.

"The MPC said that the degree of monetary accommodativeness is consistent with intended policy stance. On this note, we opine that BNM is comfortable in maintaining the OPR at its current level for now," it said.

Its base case is for BNM to remain on hold for the rest of 2018 unless growth surprises on the downside.

PublicInvest Research said the outlook on the policy rate will be data-dependent given the on-going economic recharting and rebalancing.

"We expect better visibility once the fiscal plan gets firmed up in November in conjunction with the tabling of Budget 2019. Until then, we foresee no policy interventions for the rest of the year," it said.

Meanwhile, PublicInvest Research said that the ringgit may continue to suffer from exogenous short-term noises particularly from the ongoing trade frictions and the series of US interest rate adjustments.

However, it noted that the ringgit is tracking regional currencies' movements, particularly the rupiah and the baht, and maintained its full-year average forecast of RM4 per dollar.