In line with ours and consensus estimates, BNM left the OPR unchanged at 3.25%. The tone was “neutral” with growth expected to remain steady supported by private activity although risks from trade tensions, volatile financial markets, and US policy normalisation remain.

Although the headline inflation is expected to stay low in 2018 and pick up in 2019 from projected higher oil prices, the floating of domestic fuel prices and impact of the consumption tax policy, we maintain our view that the OPR will stay unchanged in 1H2019.

However, room for a rate hike is seen evident in the 2H2019 which will be data-driven. Should potential inflationary pressure continue to trend upwards, driven by stronger underlying inflation, we foresee a 25bps hike in 2H2019. We have been playing down on the possibility of a rate cut in 2019, and still maintain our view.

• As expected, Bank Negara Malaysia (BNM) left the overnight policy rate (OPR) unchanged at 3.25% after having raised rates once in January by 25bps.

• In the latest policy meeting, we found the tone of BNM to be “neutral”. The economic growth will be supported by private sector activity with private consumption to be the main growth driver with investment supported by sustained capacity expansion despite risks arising from trade tensions, volatile financial markets and the US policy normalisation. Though headline inflation will be low in 2018, it is expected to rise in 2019 due to higher global oil prices, the floating of domestic fuel prices and impact of the consumption tax policy.

• Looking ahead into 2019, we expect BNM to maintain the current OPR of 3.25% for the 1H2019, with the aim to support the economic growth while maintaining inflationary pressure. However, room for a rate hike is seen evident in the 2H2019 which will be data-driven. Should potential inflationary pressure continue to trend upwards, driven by stronger underlying inflation, we foresee a 25bps hike in 2H2019. We have been playing down on the possibility of a rate cut in 2019, and still maintain our view.

Source: AmInvest Research - 9 Nov 2018