BNM likely to raise rates in 2018, says analysts
KUALA LUMPUR: Bank Negara Malaysia’s (BNM) monetary policy committee (MPC) retained the overnight policy rate (OPR) at three per cent but analysts believe that the central bank could raise the OPR in 2018.
“Looking forward, we expect BNM to maintain the rate at three per centfor the rest of 2017.
“We believe the central bank is unlikely to hike interest rates on expectations that inflation would normalise in the second half (2H), while economic growth has just picked up and the ringgit has stabilised of late,” RHB Research Sdn Bhd (RHB Research) said in a report on the matter.
On the other hand, it said the stronger-than-expected economic growth in the country, coupled with the US Federal Reserve’s (US Fed) plans to reduce its balance sheet is likely to limit the scope for BNM to cut interest rates.
“Further out, however, we think the monetary policy stance is tilted toward the upside in 2018. We believe the central bank is likely to increase the OPR by 25 basis points (bps) to 3.25 per cent next year, as major global central banks are increasingly inclined to tighten monetary policies while Malaysia’s economic growth is projected to improve further,” it opined.
“As it stands, this was MPC’s seventh consecutive meeting in which the OPR was put on hold after being reduced by 25bps in July 2016.
“The move was widely expected, as headline inflation has begun to normalise since hitting a peak of 5.1 per cent year-on-year (y-o-y) in March.
“At the same time, the ringgit has stabilised as a result of BNM’s forex measures and a weaker US dollar.
“The domestic economy also recorded stronger economic growth in 1H17, which is further supporting the ringgit and foreign inflow of funds,” the research team said.
Meanwhile, the research arm of AmInvestment Bank Bhd (AmInvestment) also believed that BNM would retain the OPR rate at three per cent in 2017 as BNM would continue to weigh between growth prospects and inflation.
However, it maintained its 45 per cent chance of a possible rate hike in November by 25bps.
“This could happen if the GDP continues to grow stronger and inflation becomes sticky downwards due to the pressure emanating from stronger demand-pull as opposed to cost push,” it said.
All in, AmInvestment said in the policy statement, BNM remained upbeat on the domestic growth outlook, citing the strong contribution from exports should result in positive spillovers on the economy apart from the domestic activities’ contribution.
At the same time, it noted that BNM remained confident of a moderate outlook for the headline and core inflation, largely supported by softer domestic fuel prices and smaller effect from global cost factors.
“Also, the underlying inflation (core inflation) will be sustained by robust domestic demand. However, it is expected to remain contained,” it added.