Bank Negara expected to maintain key rate, SRR until Q3 next year

PETALING JAYA: AmBank Research expects Bank Negara Malaysia to maintain its Overnight Policy Rate (OPR) and statutory reserve requirement (SRR) at 3% and 3.5% for 2016 until the third quarter of 2017, after the central bank took no action at the last Monetary Policy Committee meeting.

“We have placed a low 30% probability of a rate hike by 25 basis points in 4Q2017 on the back of 2-3 rate hikes by the US Fed, pick-up in inflation and steady domestic gross domestic product growth by 4.5% in 2017,” the bankbacked research firm said in its note yesterday.

The committee on Wednesday said it believes that fiscal stimulus in developed economies could result in a more balanced policy environment that will be supportive of growth. However, risks of protectionism and financial market volatility are a cause for concern.

Private consumption remains the growth engine, supported by sustained wage, stable employment, increase in minimum wage with effect from July 1, 2016 and fizzling of the Goods and Services Tax impact.

Ongoing infrastructure investments and capital expenditure in both manufacturing and services sectors will continue to boost investment activities.

Meanwhile, export expansion will be constrained by external headwinds and weak prices while headline inflation is projected to remain tame amid subdued global inflation.