- Bank Negara Malaysia (BNM) retained the Overnight Policy Rate (OPR) at 3.25% yesterday. While the downside risks to global growth have increased, the domestic economy is expected to remain on a steady growth path.

- According to the Monetary Policy Committee (MPC), economic activity has been supported by the continued growth in domestic demand and exports.

- Going forward, domestic demand is expected to moderate but will remain as the key driver of growth. Private consumption is expected to slow down in 3Q14 as both consumer and business sentiments have deteriorated.

- Based on MIER's survey for 3Q14, the Consumer Sentiments Index (CSI) slipped by 2.1 points QoQ to 98.0 points (2Q14: 100.1 points).

- The drag in CSI recently was due to the weaker consumer outlook for both the current and expected finances and employment prospects.

- Mainly, consumers are wary about future economic outlook and are becoming more cautious in terms of sentiments.

- Aside from that, MIER’s Business Conditions Index (BCI), which was on the uptrend for two consecutive quarters, has registered a slowdown in 3Q14 as well. The BCI declined by 17.0 points QoQ to 95.9 points.

- Meanwhile, exports will continue to benefit from the recovery in advanced economies and from regional demand, although its growth will be slower, partly reflecting the base effect during 2H13.

- External demand slowed in 3Q14 as net trades have registered moderated surpluses of RM3.6bil in July and RM3.9bil in August 2014.

- Elsewhere, inflation has stabilised in September and is expected to remain relatively stable for the remainder of the year despite the subsidy rationalisation in October.

- Going into next year, inflation is projected to edge higher due to domestic cost factors. However, the absence of external price pressures and moderate demand conditions will mitigate the impact of rising inflation.

- The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

- As such, further adjustment to the degree of monetary accommodation may depend on the Bank’s assessment on the economic upside and downside risks ahead.

- The MPC meeting yesterday was the final meeting for this year. The MPC is scheduled to meet on 27 and 28 January 2015, which is the first meeting for 2015.

Source: AmeSecurities