BNM to stand pat on OPR hike, positive growth
We maintain our year-end OPR projection of 3.25 per cent, implying we expect no further hikes for the year.
KUALA LUMPUR: Bank Negara Malaysia (BNM) will not likely increase its overnight policy rate (OPR) this year following its recent hike announced on Thursday.
Malaysia’s economy is also expected to remain on a positive trend, as its growth conditions have improved considerably since the lows seen in 2016.
United Overseas Bank (Malayisa) Bhd’s (UOB Malaysia) senior economist Julia Goh said in her research note: “We maintain our year-end OPR projection of 3.25 per cent, implying we expect no further hikes for the year.”
However, she noted that BNM’s statement sounded neutral on future monetary policy direction. She added, the statement said that “at current level of OPR, the stance of monetary policy remains accommodative”.
On the other hand, she also noted that BNM kept an optimistic view on global growth and the domestic economy.
“Inflation is expected to moderate on expectations of a smaller effect from global cost factors while a stronger ringgit compared to 2017 will help mitigate import costs.
“We project inflation to ease from 3.7 per cent in 2017 to 2.5 per cent in 2018. Official forecasts are projecting headline inflation at 2.5 to 3.5 per cent in 2018.”
Goh added that UOB Malaysia expected the ringgit to stay firm supported by firm Brent crude oil, pronounced US dollar weakness, and robust macro conditions. This is consistent with market views.
As for Malaysia’s economic performance, BNM reiterated the positive view on the global and domestic economy.
“We concur with BNM’s positive growth outlook. Malaysia’s growth conditions have improved considerably since the lows of 2016. Following the implementation of the Goods and Service Tax and the oil price slump in 2015, the economy posted subpar growth with real GDP coming in below five per cent for seven straight quarters.
“The economy turned around in second half of 2016 and has been on a continuous uptrend since. In the third quarter of 2017, Malaysia’s real GDP accelerated to a three-year high of 6.2 per cent,” Goh said.
Crossing into 2018, UOB Malaysia believed that there are catalysts to keep the beat going at five per cent.
“Although it marks moderation from our estimated projection of 5.8 per cent in 2017 mainly due to high base effects, growth is expected to stay near or at the country’s potential growth,” she said.
“Malaysia’s economic growth is largely attributed to supportive global growth conditions as well
as higher private consumption levels and private investment spending. Malaysia’s exports have also undergone some structural improvements such that we are seeing a broader mix of gains,
particularly for manufactured goods and services sold abroad,” she added.
According to UOB Malaysia, key catalysts for sustained economic growth in 2018 include stable commodity prices, to buffer rural incomes and government revenue, ongoing infrastructure projects, as well as increased contribution from ‘new economy’ drivers such as digital and Information and Communication Technology (ICT) expansions.
Meanwhile, it noted that fiscal measures such as personal tax cuts, cash aid and other measures announced in the latest budget could inject a further RM15 billion (circa one per cent of GDP) into the economy.
“This provides continuous support for consumer spending even after the Employee Provident Fund contribution rate normalises this year. Concurrently exports, though expected to moderate, should remain sufficiently robust at high single-digit growth.
“Positive aspects from the commodity rebound should also result in higher demand for energyrelated investments,” Goh said.
UOB Malaysia also pointed out that Malaysia’s banking system liquidity remains sufficient with financial institutions continuing to operate with strong capital and liquidity buffers.
“Growth of financing to the private sector has been sustained and is supportive of economic activity,” it added .