Bank Negara keeps benchmark interest rate unchanged

PETALING JAYA: Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 3% at its Monetary Policy Committee meeting yesterday, as widely expected by most economists.
Meanwhile, the ringgit continued to weaken against the US dollar. The ringgit depreciated 0.53% to 4.4445 against the greenback yesterday, the lowest level in 18 years.
BNM said in a statement that at the OPR’s current level, the degree of monetary accommodativeness is consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid stable inflation, supported by continued healthy financial intermediation in the economy.
Just two weeks after Donald Trump’s shock victory in the US presidential election, the ringgit has continued to plunge, while outflows from the bond market exacerbated the weakness in the currency as investors reduced their positions on the Malaysian front.
The central bank said the ringgit, along with most other emerging market currencies, has experienced sharp adjustments and significant volatility due to continuing uncertainties in the global economic and policy environment, and geopolitical developments. These factors could result in periods of volatility in the regional financial and foreign exchange markets.
“In this regard, BNM will continue to provide liquidity to ensure the orderly functioning of the domestic foreign exchange market. The capital market remains accessible, deep and liquid. Banking system liquidity is ample. Financial institutions continue to operate with strong capital and liquidity buffers and the growth of financing to the private sector is consistent with the pace of economic activity,” BNM said.
It added that while the prospect of a shift towards progressive use of fiscal policy in the developed economies could lead to a more balanced policy environment that would support growth going forward, there is uncertainty arising from risks of protectionism and financial market volatility.
“Heightened financial market volatility in recent weeks has had an adverse effect on various asset classes, exchange rates and yields across many emerging economies. Global financial market conditions are likely to be susceptible to policy and market developments,” said BNM.
OCBC Bank economist Wellian Wiranto said at this stage, the ringgit carries the unfortunate moniker of being one of the worst-performing Asian currencies since the US election.
He said the recent global currency volatility would likely have played into BNM’s consideration when it opted to keep the OPR unchanged at 3%.
“Like most of us, the central bank appears to be grasping for a sense of how a President Trump would shape the global growth outlook and the implications for Malaysia’s own economy, and therefore its policy rate path,” Wellian said.
He added that it remains unlikely that BNM will be comfortable easing the OPR at the next meeting of the Monetary Policy Committee on Jan 18 and 19 next year.
“There is a very little chance to see BNM opening 2017 with a rate cut, but probably the market would have adjusted well to the eventuality by the time BNM meets again in early March for it to proceed with easing once more.”
Wellian said that if the already-tepid global trade flows become further crimped next year due to tariffs or even threats of them, Malaysia would rank as one of the more highly impacted.