‘BANK NEGARA TO STAY PAT THIS YEAR’

Another OPR cut unlikely despite moderating global economy, say JPMorgan Chase Bank and OCBC Bank

JPMORGAN Chase Bank and OCBC Bank do not expect another cut in Overnight Policy Rate (OPR) this year, despite the ever moderating global economy.

Both banks also voiced their surprise over Bank Negara Malaysia’s decision through its Monetary Policy Committee (MPC) to cut the OPR to three per cent from 3.25 per cent before July.

“Bank Negara cut its policy rate

by 25 basis points to three per cent, against JPMorgan’s expectations, but (it is) in line with the consensus as we had penciled in a July cut on the view that the central bank would wait for confirmation from the data before cutting its policy rate,” said JPMorgan in a note yesterday.

“That being said, Bank Negara noted in its policy statement that the tightening in financial conditions, possibly due to the weak performance in equity markets, prompted the cut separate from the rising downside risks to growth,” it added.

Through that reasoning, JPMorgan said: “Given the rate cut, we expect Bank Negara to remain on hold this year unless external demand conditions deteriorate materially from here.”

OCBC Bank said Bank Negara had become the first central bank in Southeast Asia to cut its key interest rate.

“Bank Negara becomes the first central bank in Asean to undertake an easing. This was contrary to our expectations as we had expected a rate cut to come as early as July instead.

“Going forward, based on the tone of its statement, we expect Bank Negara to stay pat for the rest of the year although this is barring any significant major downturn in global growth.”

OCBC has set a higher headline inflation of 1.3 per cent than Bank Negara’s one per cent.

“Our forecast for headline inflation this year stands at 1.3 per cent year-on-year, but if the current ceiling on domestic retail fuel prices stays in place for the rest of the year, the headline inflation may drop below one per cent year-on-year.”

On Tuesday, Bank Negara said the adjustment to the OPR was intended to preserve the degree of monetary accommodativeness.

“This is consistent with the monetary policy stance of supporting a steady growth path amid price stability.

“The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation,” it said.