BNM seen maintaining key rate till year-end

PETALING JAYA: Bank Negara Malaysia (BNM) could use the final policy meeting in November to pre-empt its next step, if any, rather than to undertake an outright intervention, said PublicInvest Research.

“Unexpected intervention is negative to sentiment and this may unnecessarily add to jittery conditions. As the macro fiscal plan will only be known in a wholesome manner in November in conjunction with the tabling of Budget 2019, any intervention may only convey negative signals that all may not be well with the momentum of the economy,” it said in its report yesterday.

It said that external conditions have not changed much despite the ongoing trade tiff, as reflected in Malaysia’s steady exports momentum.

“With no compelling reason to justify an intervention, we foresee the Overnight Policy Rate (OPR) to remain unchanged for the rest of the year,” it added.

The central bank maintained its OPR at 3.25% and Statutory Reserve Requirement at 3.5% at the fifth policy meeting on Wednesday. The next meeting will be on Nov 8.

PublicInvest Research said Malaysia’s growth prospects remain steady at this stage, given the resilient domestic demand, complemented by stable external outlook. Nonetheless, BNM has forewarned that the balance of risks has tilted to the downside especially with the deepening of trade frictions.

“The ensuing volatility arising from the upcoming interest rate adjustments in the US (another two) is another source of risk which may cause financial duress,” it said.

However, BNM said that the policy rate remains accommodative and conducive, and has not given any indication or hint of any intervention in the near future.

On growth outlook, PublicInvest Research said Malaysia’s economy may endure a transitory period of slowdown, which is consistent with the re-balancing and re-charting of growth drivers.

It said that the removal of excesses and re-prioritisation of projects could be a precursor of faster economic growth in the future.

“At this stage, our engine of growth, notably private consumption, remains steady thanks to tepid inflation and measures to keep cost under control, most notably the petrol price.

“Sentiment will also be supported by improving confidence, reflected by MIER’s 2Q18 consumer sentiment index which touched a 13-quarter high. Business sentiment index, meanwhile, vaulted to a 21-year high,” it added.