In line with the market’s and our expectations, BNM kept interest rate unchanged at 3.25% with a view that the economic growth will continue to be supported by domestic demand and exports underpinned by healthy global growth. Inflationary pressure remains on the back of rising crude oil prices. Though our base case suggests a total of one rate hike in 2018, we are still holding to our 45% chance of another rate hike in 2H2018. In the meantime, with exports and manufacturing output up 5.7% y/y and 5.2% y/y respectively, our estimate shows the 1Q2018 GDP is at 5.5% y/y. Our full-year projection remains at 5.5%, supported by domestic demand and exports.

• In line with the market’s and our expectations, BNM kept interest rate unchanged at 3.25%. We found Bank Negara’s tone to be neutral. It remained confident on the economic growth that will be supported by domestic demand and exports underpinned by healthy global growth. We are maintaining our 5.5% GDP projection for 2018.

• Inflationary pressure remains on the back of rising crude oil prices. We reiterate our 2018 inflation projection at 2.5% – 2.8%.

• However, BNM remains cautious over volatility in the equity markets as the risks from the global trade and geopolitical tensions remain. Besides, BNM acknowledged that the rising crude oil is potentially driving price pressure higher.

• Though our base case suggests a total of one rate hike in 2018, we are still holding to our 45% chance of another rate hike in 2H2018. Much depends on: (1) the pace of rate hikes in the US as yields differential between US and Malaysian yields will emanate pressure on BNM; and (2) signs of inflationary pressure emerging globally. The normalisation rate in 3.50%.

• In the meantime, with exports and manufacturing output up 5.7% y/y and 5.2% y/y respectively, our estimate shows the 1Q2018 GDP is at 5.5% y/y. Our full-year projection remains at 5.5%, supported by domestic demand and exports.

Source: AmInvest Research - 14 May 2018