Bank Negara maintains OPR at 3.25%

Central bank keeps OPR at 3.25%

PETALING JAYA: As widely expected, Bank Negara has kept the overnight policy rate (OPR) unchanged at 3.25%, despite the persistent downward pressure on emerging market currencies, including the ringgit, as the US continues on its path to raise interest rates.

Some economists note the dovish tone from Bank Negara indicates that central bank would likely continue to maintain the country’s benchmark interest rates at the current level through the end of the 2018.

Bank Negara’s monetary policy committee (MPC) is set to meet next, and for the final round in 2018, to decide on the OPR move on Nov 8.

MIDF Research chief economist Kamaruddin Mohd Nor said he expected no change to the OPR at the November meeting at the country’s moderating gross domestic product (GDP) growth and price stability would be more concerning for the time being than the downward pressure on the ringgit.

“Amid balanced risk, we maintain our baseline view of a single rate hike in 2018 (which already happened in January). We expect domestic economy will continue to expand at a moderating pace in 2018.

“However, future developments in both internal and external fronts will determine the upcoming outlook of Malaysia monetary policy,” MIDF Research said in its note.

Similarly, Nomura Research said it expected no change to the OPR for the remainder of 2018, but there could be a possibility of a rate cut next year.

“With 2018 GDP growth set to undershoot Bank Negara’s 5% forecast, we expect the policy rate to be left unchanged at 3.25% through the rest of 2018,” the international brokerage said.

“However, with GDP growth likely to slip lower to 4.2% in 2019, a rate cut in 2019 cannot be ruled out, in our view,” it added.

Nomura Research expected Malaysia’s 2018 GDP growth to be 4.7%.

Amid the moderating growth, the brokerage said: “We see a risk of an increasingly dovish tone in future monetary policy statements, even if the policy rate is left unchanged.”

In its statement yesterday, Bank Negara said the current level of the OPR would provide “the degree of monetary accommodativeness” that is “consistent with the intended policy stance”.

“Because of Bank Negara’s less upbeat assessment on growth, this concluding remark still appears to suggest that rate cuts are not yet under consideration, in our view,” Nomura Research said.

Meanwhile, RHB Research said it expected Bank Negara to keep the OPR unchanged at 3.25% for the rest of 2018 and into 2019, as this would help keep the stability of the ringgit versus the US dollar against the backdrop of ongoing monetary tightening by the US Federal Reserve.

“Further out, global growth has started to slow, while the trade war between the US and China will likely have an adverse impact on global trade going forward.

“Under such circumstances, the US Fed may be forced to slow down its pace of rate hikes next year, in our view,” the brokerage said.

In its latest assessment of Malaysia’s growth outlook, Bank Negara noted that “trade tensions continue to be a key source of downside risk”.

On the domestic side, the central bank reckoned that public sector spending was expected to weigh on Malaysia’s growth, as the Government embarks on reprioritisation of expenditure.