Strong Q3 GDP growth should keep interest rate cut at bay

KUALA LUMPUR: The strong third quarter gross domestic product (GDP) annualised growth of 4.3% should hold off any further interest rate cuts by Bank Negara Malaysia (BNM) for the rest of the year, opined economists.
“As such, we are revising our OPR (Overnight Policy Rate) expectation from 2.75% to 3.00% by year-end 2016, while remaining one rate cut next year which will lead the benchmark interest rate to end 2017 at 2.75%,” MIDF Research said in a report following the announcement of the third quarter GDP growth last Friday.
The research house is also revising its GDP growth forecast for 2016 from 4.0% to 4.1% and fourth quarter GDP growth from 3.8% to 4.0%. At the same time, it is expecting Malaysia’s economy to grow by 4.3% in 2017.
“At the moment, there are signs of better global trade activity next year, though we remain cautious with any possible protectionism policy set up by president-elect Donald Trump as he has promised in his manifesto,” said MIDF Research.
The third quarter GDP growth was underpinned mainly by continued expansion in private sector spending and additional support from net exports. Domestic demand, particularly private sector activity, will continue to be the key driver of growth.
While domestic conditions remain resilient, uncertainties in the external environment may pose downside risks to Malaysia’s growth prospects.
BNM governor Datuk Muhammad Ibrahim said it is now too early to assess the impact of Trump’s victory in the US presidential election on Malaysia’s economy.
“As the US policies become more apparent, we will do the necessary changes,” he told a press conference after announcing Malaysia’s third quarter economic performance.
As an economy, he said, Malaysia must be resilient enough to absorb any external shock.
He added that the country has always been open to trade, the process of globalisation and supportive of trade deals. “We’ve prepared our industries and people for all the challenges brought about by increased globalisation.”
Muhammad said the next Monetary Policy Committee meeting (on Nov 23) will look at the numbers and possible impact of the outcome of the US presidential election.
BNM said the Malaysian economy, even without the Trans-Pacific Partnership (TPP), has continued to perform well. If TPP comes into play, it will be a plus for the economy, it added.