Strong growth, moderating inflation for Malaysia
KUCHING: Bank Negara Malaysia (BNM) kept its benchmark rate unchanged at three per cent at its latest Monetary Policy Committee (MPC meeting) which came in line with OCBC Bank (Malaysia) Bhd’s view.
This marks policy-makers reluctance to move rates since its surprise cut in July last year.
In the MPC statement, BNM highlighted that the strengthening global growth and pick up in trade is still being observed, and Malaysia’s future growth prospects “will be sustained by the more positive global growth outlook and stronger spillovers from the external sector to the domestic economy”.
“Indeed, growth so far this year has been encouraging to begin with. Note that GDP in the second quarter printed 5.8 per cent year on year (y-o-y), bringing growth print in the first half of 2017 (1H17) to 5.7 per cent - clocking its fastest pace since 1H14,” OCBC said in a statement.
“More recently, July trade numbers also surprised higher with exports growth touching 30.9 per cent y-o-y, suggesting that Malaysia’s external environment remains supportive for overall growth.”
Elsewhere, inflation continued to moderate further given the decline in domestic fuel prices, and is expected to moderate further into the year given diminishing cost-push drivers.
“With the healthy growth prints and tame inflation, there is likely little motivation for policy-makers to move rates anytime soon,” OCBC opined. “Malaysia’s growth fundamentals have been healthy so far, led by strong external factors and resilience in its domestic demand.
“Inflation has also been decelerating since March 2017. However, there are risks to the growth trajectory, especially from any unexpected negative developments from political and/or policy developments in major economies and geopolitical risks.
“Furthermore, Malaysia’s household debt is one of the highest in the region at 86.7 per cent in 1Q17, which could dissuade policy-makers in cutting rates further unless necessary.”
All in all, OCBC Bank kept its year-end growth outlook at 4.9 per cent while inflation is pencilled at 2.9 per cent.
“In regards to the relatively rosier economic environment, we expect policy-makers to keep their benchmark rate unchanged at 3.0 per cent for the rest of the year.”