As expected, Bank Negara Malaysia (BNM) left the overnight policy rate (OPR) unchanged at 3.00% following a 25-basis-point (bps) cut in May. This time around, we found the policy statement to be cautious on growth and less dovish, shifting from the previous statement of “there are downside risks” to now “subject to downside risks” owing to uncertainties from the external and domestic environments, trade tensions and low commodity prices.

Based on the tone of BNM and in particular, hardly any comment on the “downside risks”, it somewhat tells us that the central bank will maintain the policy rate possibly till end-2019. Given that the monetary policy will remain data dependent, and acknowledging that the potential direction of the policy rate is subject to the downside risks, we still maintain our 40% probability for another rate cut in the later part of the year. It can happen should global downside risks flare up due to unexpected shocks and our potential macro figures take a dip.

• As expected, Bank Negara Malaysia (BNM) left the overnight policy rate (OPR) unchanged at 3.00% following a 25-basispoint (bps) cut in May. There was no real urgency for BNM to institute a back-to-back cut in the policy rate given that some of the numbers are showing positive signs.

• In the meantime, we found the policy statement to remain cautious on growth and less dovish. For a start, there was hardly any comment on the “downside risks”. In fact, BNM shifted its tone from the previous statement of “there are downside risks” to now “subject to downside risks” owing to uncertainties from the external and domestic environments, trade tensions and low commodity prices.

• Another point to take note is that BNM is of the view that headline inflation should rise in the coming months as impact from the changes in consumption tax policy will fade. The impact on the headline inflation depends on global oil prices and the timing when domestic retail fuel prices are pushed up. Yet, BNM is of the view that the overall headline inflation remains broadly stable compared with 2018.

• Based on the tone of BNM and in particular, hardly any comment on the “downside risks”, it somewhat tells us that the central bank will maintain the policy rate possibly till end-2019. It will remain vigilant and continue to assess the balance of risks between domestic growth and inflation to ensure sustainable growth and price stability.

• Given that the monetary policy will remain data dependent and acknowledging that the potential direction of the policy rate is subject to the downside risks, we still maintain our 40% probability for another rate cut in the later part of the year. It can happen should the global downside risks flare up due to unexpected shocks and our potential macro figures take a dip.

Source: AmInvest Research - 10 Jul 2019