Mixed opinions on future cuts as BNM stands pat on OPR
KUALA LUMPUR: Analysts are mixed in their expectations of future rate cuts for the Overnight Policy Rate (OPR) as Bank Negara Malaysia (BNM) kept this unchanged at Tuesday’s meeting.
This marks the BNM Monetary Policy Committee’s (MPC) sixth straight unchanged rate since raising the OPR back in January 2018 by 25 basis points.
AmBank Research in its notes yesterday said B NM acknowledged the downside risks in the economic and financial environment, and the need to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.
“This supports our view for a rate cut to most likely take place during the July 9 meeting rather than the May 7 MPC meeting,” it said, adding that this takes into account of some recent anecdotal evidences of macro figures revealing a weak trend.
On the other end of the spectrum, RHB Research Institute Sdn Bhd (RHB Research) economist Vincent Loo believed the latest MPC statement offered little hints of an OPR cut in the near term.
“In our view, the interest rate risk continues to tilt to the downside with the ongoing rise in the real interest rate in early 2019,” he said in his notes yesterday.
“We maintain our view for BNM to keep the OPR unchanged at 3.25 per cent for 2019. However, we think a window for a rate cut could arise should economic growth soften more than expected and major central banks show signs of shifting away from their monetary tightening stance.”
Meanwhile, the economics team at Kenanga Investment Bank Bhd (Kenanga Research) said the only way the market could second guess BNM’s next move was to scrutinise the tone of the official statement.
“This time round, BNM appear to sound a bit more concern on the current state of the economy due to ‘heightened uncertainties’,” it said.
“This implies that it perceived the downside risk may have risen a notch from the previous statement.
“In the statement, it warned that ‘materialisation of downside risks from unresolved trade tensions, heightened uncertainties in the global and domestic environment, and prolonged weakness in the commodity-related sectors could further weigh on growth.’
“The above quote preceded a statement that ‘baseline forecast is for the Malaysian economy to remain on a steady growth path.’
“However, the very fact that the global economic trajectory is deteriorating as reflected in the latest global PMI growth data suggest that the current growth assumption may require a relook and the official growth forecast may need to be tweaked to reflect the increasingly gloomy reality.”
Last month, Kenanga Research revised its gross domestic product (GDP) growth forecast for 2019 to 4.5 per cent from 4.7 to reflect the rising uncertainty.
Nonetheless, the government remained confident that it could achieve a higher growth target of 4.9 per cent in 2019 from 4.7 seen in 2018.
This comes as BNM toned down its inflation expectation in 2019 even further to “stable”, from “moderately higher” previously and “inflation is projected to increase” end of last year.
“Coupled with a fair warning that the global economy is slowing and a dovish US Federal Reserve, this may provide justification apart from creating ample room for a rate cut,” it continued.
“At this juncture, we do not see the need for BNM to do so lest it triggers a bigger capital outflow and unnecessarily weakens the ringgit.
“Barring a major external shock, we expect the OPR to remain at 3.25 per cent this year.”
This supports our view for a rate cut to most likely take place during the July 9 meeting rather than the May 7 MPC meeting. AmBank Research