BNM will likely maintain OPR throughout 2017 — Analysts
In addition, global trade activities are on firm recovery despite threat of protectionism in developed economies.
KUCHING: Bank Negara Malaysia’s (BNM) decision to leave the overnight policy rate (OPR) unchanged at three per cent was within analysts’ expectations.
In line with the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research) expectation, OPR was left unchanged at three per cent.
The decision was expected by MIDF Research as the encouraging growth momentum for the first quarter 2017 is likely to be sustained for the rest of the year.
“In addition, global trade activities are on firm recovery despite threat of protectionism in developed economies,” the research arm said.
“For the first three months of 2017, most major economies registered double digit growth in both exports and imports, indicating stronger global demand in 2017 as compared to 2016.”
BNM’s decision to maintain OPR at three per cent was also within the Bloomberg consensus and AllianceDBS Research Sdn Bhd’s (AllianceDBS Research) expectations.
“In the statement, BNM maintained a neutral tone with upside bias with regards to the domestic economic outlook for the year,” AllianceDBS Research said.
According to AllianceDBS Research, in the first quarter 2017 (1Q17), inflation was elevated at 4.3 per cent, the highest since 2008.
“However, the underlying inflation trend, as reflected by core inflation, remains manageable, which indicates that headline inflation is mainly driven volatility in the crude oil prices,” it said.
AllianceDBS Research noted that whilst domestic demand remains resilient, the bearish Malaysian Institute of Economic Research (MIER) consumer sentiments and moderate household loans growth point to an expansionary but nonaccelerating outlook on private consumption this year.
MIDF Research
The research house further noted that despite the heavy selldown of Malaysian Government Securities (MGS) by foreign investors, the ringgit has remained relatively stable, which could partly be due to BNM’s foreign exchange administration measures introduced in December 2016.
It has however, pointed out that there are downside risks to the ringgit exchange rate as MGS is susceptible to further selldown, especially given that around RM50 billion of MGS is set to mature in the second half of 2017 (2H17) and the pace of US Federal Reserve rate hikes.
Meanwhile, MIDF Research highlighted that Malaysia’s industrial production and distributive trade expanded firmly by 4.6 per cent year on year (y-o-y) and 8.9 per cent y-o-y respectively in March.
“On external front, exports breached RM80 billion in March. Exports growth expanded by double digit rate for the fifth consecutive months.
“Among major trading partners, China and Taiwan recorded exports growth of eight per cent y-o-y and 9.4 per cent y-o-y in April.
“This indicates high probability of another commendable exports performance in April for Malaysia,” the research house said.
It added that despite threat of protectionism, China’s exports to US surged by double digit growth at 11.7 per cent y-o-y in April.
Even though protectionism remain as a risk factor, MIDF Research felt the threat of protectionism is receding.
The research arm noted that this is reflected in the results of Dutch and French elections which saw anti-European Union (EU) leaders Geert Wilders and Le Pen defeated at a significant margin.
“This show majority of Europeans are not supporting the idea of protectionism,” it said.
On the other hand, MIDF Research opined that the volatility of commodity price is to continue but at the lower range.
The research arm believed that gradual improvement in global demand and further extension of production limit among Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC countries will support and stabilise the oil price.
On headline inflation which reached an eight-year high in March, MIDF Research pointed out that the steep rise in inflation was mainly due to cost-driven factors rather than demand-push.
“For instance, price of transports rose by 23 per cent y-o-y during the month which was due to the rise in retail fuel prices in January and February this year,” the research arm said.
The research arm opined that the effect of fuel prices will lapse off in the coming months as weekly fuel price mechanism may reduce volatility in consumer’s price expectations.
“Core inflation stays below three per cent, registering 2.5 per cent in March,” it added.
It forecasted headline inflation for 2017 to be at 4.5 per cent reflecting higher global oil prices.
All in, MIDF Research expected BNM to maintain OPR at three per cent in 2017.
“Solid performance in domestic economy coupled with strengthening global demand should bode well for domestic economic growth,” it said.
The research arm was in the opinion that BNM will continue with its accommodative monetary stance to support domestic economic activity.
AllianceDBS Research also believed that BNM would keep OPR steady at three per cent throughout the year.