• BNM holds OPR at 3.25%
• The overall tone of the statement was neutral
• BNM reassures that the financial sector is strong
• OPR to remain at 3.25% in 2018

The Monetary Policy Committee (MPC) of Bank Negara Malaysia kept the Overnight Policy Rate (OPR) unchanged at 3.25% at its third monetary policy meeting this year. The overall tone of the statement was neutral. BNM expects the global economy to stay resilient though risks linger should trade and geopolitical tensions escalate. Financial markets could also turn more volatile.

BNM mentioned in their monetary policy statement that “domestic financial markets remained resilient”, “Malaysia’s economic fundamentals are strongly anchored” and “the domestic economic outlook remains positive”. Financial markets could also turn more volatile. The Malaysian economy continues to expand, buoyed by private sector activity and exports. Prospects for the domestic economy remain strong, driven by domestic and external demand. BNM reassures that the financial sector is strong and monetary and financial conditions are supportive of economic growth in the post-election environment. BNM reiterates moderate inflation expectations and that the trajectory of headline inflation will depend on global oil prices which is uncertain. Core inflation is projected to remain moderate amid stable demand.

OPR to remain at 3.25% in 2018

BNM kept its policy rate on hold at 3.25% following a hike at its last meeting in January. BNM statement concluded with “At the current level of OPR, the degree of monetary accommodativeness is consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid lower inflation”. As such, we expect BNM to keep interest rates on hold for the rest of this year as the Central bank has pre-emptively raised rates in January and would probably be on monitoring mode. The statement made no reference to the recent political developments. We maintain our year-end OPR projection of 3.25%.

Source: BIMB Securities Research - 14 May 2018