Despite some noises on a possible rate cut by BNM in the recent MPC meeting, the central bank decided to maintain the Overnight Policy Rate (OPR) at 3.25%, a decision that fell in line with both ours and market expectation. Although BNM adopted a “neutral” view, we found some level of cautiousness.

We expect BNM to maintain the current policy rate in 2018 in a move to support growth while inflation remains lows. Noises on a possible rate cut in the future remains low from our assessment, showing a reading close to 20% only. While our focus will be on the next MPC meeting in September, our other emphasis will be on the budget that will be unveiled in November, looking at how the government plans to balance the book with changes on the tax rates and treatment of insolvent Government Guaranteed debt and their growth policies.

• Despite some noises on a possible rate cut by BNM in the recent MPC meeting, the central bank decided to maintain the Overnight Policy Rate (OPR) at 3.25%, a decision that fell in line with both ours and market expectation.

• Although BNM adopted a “neutral” view, we found some level of cautiousness. BNM’s outlook on the global economy has moved away from the view of “synchronized global growth” in their previous statement to "divergence across economies" with Asia’s growth risk is now "tilted to the downside" due to rising trade tensions and a continued normalization in DM monetary policy.

• On the domestic side, the central bank dropped the word “strong” to "steady growth path" while staying optimistic on private sector i.e. consumption and investment. BNM felt the core inflation will remain relatively stable. Also, the central bank maintained its outlook on the monetary policy, citing the current "degree of monetary accommodativeness is consistent with the intended policy stance.

• We expect BNM to maintain the current policy rate throughout 2018 in a move to support growth while inflation remains lows. Noises on a possible rate cut in the future remains low from our assessment, showing a reading close to 20% only. For a rate cut to happen, the potential incoming data will have to be weaker than expected and needs support through monetary mechanism. Risk on rate cut will result to net capital outflow and upwards pressure on ringgit though we may see appetite on bonds picking up.

• While our focus will be on the next MPC meeting in September, our other emphasis will be on the budget that will be unveiled in November. We will be looking at how the government plans to balance the book with changes on the tax rates and treatment of insolvent Government Guaranteed debt. We will also be looking at their growth policies.

Source: AmInvest Research - 12 Jul 2018