- Bank Negara Malaysia has decided to maintain the Overnight Policy Rate (OPR) at 3.25% during the Monetary Policy Committee (MPC) meeting yesterday.

- According to the monetary policy statement, the downside risk to the global economic outlook remains on the back of divergent growth momentum across economies amid a moderate pace of expansion.

- The uncertainties in the policy environment are also contributing to the shift in sentiments in the international financial markets.

- For Malaysia, private consumption is expected to moderate as households adjust to the introduction of the Goods and Services Tax (GST).

- While export growth will be affected by lower commodity prices, the performance of manufactured exports is expected to improve.

- As for inflation, BNM anticipates headline inflation to trend higher going forth given the impact of the implementation of the GST but will be partially offset by the overall lower global commodity prices.

- That said, cross currents in terms of global monetary policy decisions signal continued forex volatility in the months ahead.

- BNM will continue to monitor to ensure an orderly fluctuation of the Ringgit currency. As of end-March, reserves level dipped by 9.3% YTD to USD105.1bil.

- However, Ringgit has appreciated against the greenback in the 2H of April and the reserves at BNM gained by 0.5% from end-March to USD105.6bil by mid-April.

- At the current level, reserves at BNM are sufficient to finance 8.2 months of retained imports and are 1.1 times the short-term external debt.

- Elsewhere, we note that the excess liquidity of financial institutions has been on a downward trend since May 2013.

- Since then, the liquidity surplus has stumbled by a cumulative 35% from an estimated RM390.3bil in May 2013 to RM253.8bil in end-March 2015 (see Chart 2).

Source: AmeSecurities Research - 8 May 2015