Lower inflation to keep lid on OPR, says AmBank Research

KUALA LUMPUR: Bank Negara’s monetary policy committee (MPC) is expected to retain the overnight policy rate (OPR) at 3.25% for the rest of this year due to the lower inflationary trends.

AmResearch said this yesterday adding that its forecast was based on the current inflationary trajectory and Bank Negara’s outlook during the recent MPC meeting which indicated that the headline inflation may fall into negative territory.

However, the research house did price in a low possibility for a rate cut.

“Our argument is that we are currently sitting on a positive real returns with a gap around 1.65% which justifies a rate cut of as much as 50 basis points in a move to support the economic growth.

“However, we feel such move will go against the current tide of rate hike not only in the US but also several countries in this region. Such an opposing trend will intensify the weakening pressure on the ringgit and equity markets.

“Besides, we feel the 2018 GDP for Malaysia should fall within our forecast of 5.5% with the lower end at 5.3%. While the probability is still low for a rate cut, we revise downwards our inflation projection to 1.5% from 2.1%,” it said.

AmBank Research said headline inflation in June grew at a slower pace by 0.8% yearon-year compared to 1.8% year-on-year in May, bringing the first half average to 1.6%.

Core inflation rose 0.1% year-on-year in June versus 1.5% year-on-year in May, translating to 1.5% in the first half of the year.

The slower inflation was largely due to softer prices of food and non-alcoholic beverages and broad utilities which increased by 0.8% year-on-year and 1.5% year-on-year compared to 2.2% year-on-year and 2.1% year-on-year respectively.

However, transport prices accelerated in June, up 5.5% year-on-year in June from 3.8% year-on-year in May.