While the IMF has lowered global growth to 3.5% for 2019, we reiterate our global growth at 3.4%. Underpinned by slower global growth, our theme has moved from inflation towards deflation, which is also being supported by slower global oil prices which we are looking at US$62 a barrel for Brent in 2019 with WTI prices trading at a discount of around US$5 a barrel against the Brent.

With such an environment, we foresee limited room for the US Fed to maintain its aggressive monetary stance employed in 2018, and likely to raise rates 1 or 2 times in 2019, while we expect the ECB to maintain the current monetary policy rate given that the euro economy is expected to slow down. China is expected to lower its reserve required ratio and possibly even the policy rate.

On that premise, looking at Malaysia’s monetary policy outlook, BNM is expected to keep the 3.25% OPR in today’s monetary policy meeting. However, going forward, we believe there is room for a 25–50bps cut in the OPR. Slower global growth will dampen our exports. Capital expenditure is modest due to lower public investment expenditure. Inflation environment is low, projected at 1.5%. A weakening USD should see the ringgit strengthen and help reduce input cost and put a lid on upwards inflationary pressure. Oil prices are poised to be around US$62 a barrel. For 2019, the economy will be supported by private consumption and investment in manufacturing as well as services with the GDP forecasted at 4.5% for 2019.

• Decelerating global growth is already apparent in both high frequency macro data and messaging from globally exposed corporations, as evidenced by sharply decelerating revenue, contracting margins and slower cash flow growth. While the IMF has lowered global growth to 3.5% for 2019, we reiterate our global growth at 3.4%. Underpinned by slower global growth, our theme has moved from inflation towards deflation, which is also being supported by slower global oil prices which we are looking at US$62 a barrel for Brent in 2019 with WTI prices trading at a discount of around US$5 a barrel against the Brent.

• With such an environment, we foresee limited room for the US Fed to maintain its aggressive monetary stance employed in 2018. The Fed is more likely to institute 1 or 2 rate hikes in 2019. At the same time, we believe the ECB will continue to maintain the current monetary policy rate in 2019, given that the euro economy is expected to slow down. Looking at China, there is still more room for cuts in its reserve required ratio and possibly even the policy rate. On that premise, looking at Malaysia’s monetary policy outlook, BNM is expected to keep the 3.25% OPR in today’s monetary policy meeting.

• However, going forward, we believe there is room for a 25–50bps cut in the OPR. Slower global growth will dampen our exports. Capital expenditure is modest due to lower public investment expenditure. Inflation environment is low, projected at 1.5%. A weakening USD should see the ringgit strengthen and help reduce input cost and put a lid on upwards inflationary pressure. Oil prices are poised to be around US$62 a barrel. For 2019, the economy will be supported by private consumption and investment in manufacturing as well as services with the GDP forecasted at 4.5% for 2019.

Source: AmInvest Research - 24 Jan 2019