Borrowing costs stay as Bank Negara keeps OPR
PETALING JAYA: There will be no change to the borrowing costs of Malaysian households, following Bank Negara’s decision to retain the benchmark overnight policy rate (OPR) at 3.25%.
AmBank Group chief economist Anthony Dass said the unchanged OPR would have minimal impact on the spending behaviour of Malaysians, moving forward.
“With no change in the OPR at 3.25%, there will be no change to the base lending rate and base financing rate, which is around 6.65%. This would mean that households’ current borrowing cost remains intact,” he told StarBiz.
Following the first interest-rate meeting after the appointment of Datuk Nor Shamsiah Mohd Yunus as the new central bank governor, Bank Negara’s monetary policy committee left the OPR untouched, noting that “the degree of monetary accommodativeness is consistent with the intended policy stance”.
The unsurprising move was already expected across the board, with all 19 economists surveyed earlier by Bloomberg predicting Bank Negara to maintain the OPR.
In a statement yesterday, the central bank said the positive domestic economic outlook, sound financial sector and improving current account surplus of the balance of payments remained supportive of the country’s fundamentals.
“The Malaysian economy continued to expand in the first half of 2018, supported by private sector activity with additional impetus from net exports. The positive growth performance is expected to be sustained, driven by both domestic and external demand,”
it said.
On price pressures, Bank Negara foresees headline inflation in 2018 to be lower than the earlier forecast, given the impact of recent policy measures on domestic cost factors. However, the impact of these measures on inflation would be largely transitory.
“Headline inflation is likely to turn negative in some months and remain low in the first half of 2019 before trending upwards as these transitory effects lapse.
“Core inflation is nevertheless expected to remain relatively stable in line with sustained domestic demand,” stated Bank Negara.
Economists opined that the current OPR of 3.25% was supportive of Malaysia’s economic momentum and it is highly unlikely for the country to see a rate cut anytime soon, despite rising global trade tensions.
According to Dass, the probability of a rate cut is low at 20%, based on the current set of data.
“With the economy projected to grow around 5.5% which is our base case, and with our lower end at 5.3% supported by the private sector and exports, we feel there is a lesser need for a rate cut.
“A rate cut is justifiable only if the potential incoming data is weaker than expected and hence we need to support our domestic activities. Otherwise, we see a rate cut as going against the tide where an increasing number of countries are embarking on tightening monetary policy.
“Such opposing policy tends to put a strain on the ringgit dragged by capital outflow although we can expect some buffer from a positive appetite on bonds,” he said.
Echoing a similar stance, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain also believes that there is no urgency to revise the OPR downwards.
“As long as the economy grows between 5% and 6%, I do not see the need to pursue a rate cut. However, if the trade war between the United States and China continues to worsen and in turn reduces Malaysia’s gross domestic product growth rate to below 5%, then we could see a 25-basis-point rate cut to the OPR.
“For now, considering the additional tariffs on US$250bil worth of Chinese imports announced so far by the US, the impact on Malaysia remains small and manageable,” said Manokaran.
Meanwhile, in a note issued yesterday, Nomura Research said Bank Negara is projected to leave the OPR unchanged at 3.25% through the rest of 2018 and 2019.