• BNM maintains OPR at 3.25%
• BNM holds OPR at 3.25%
• MPS maintained neutral tone
• Economy will continue to expand at a moderating pace in 2018
• BNM to keep OPR unchanged at 3.25% into 2019

The Monetary Policy Committee (MPC) of Bank Negara Malaysia left the Overnight Policy Rate (OPR) unchanged at 3.25% at its sixth and final monetary policy meeting for this year. The decision is widely expected and timely as macroeconomic indicators are reflecting moderating signs especially at the global front. The central bank expects the economy to continue to be driven by private consumption and for headline inflation to increase going forward.

The accompanying statement’s tone was largely unchanged from the last meeting. In its monetary policy statement (MPS), the policymakers said the economy maintains its underlying fundamental strength with steady economic growth. Private consumption will remain the main driver of growth, supported by conducive labor market conditions, but domestic economy continues to face downside risk stemming from any further escalation in trade tensions and prolonged weakness in the mining and agriculture sectors.

The meeting also approved the schedule of MPC meetings for 2019. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year.

BNM to keep OPR unchanged at 3.25% into 2019

The Ministry of Finance (MOF) as per its Economic Outlook report 2018/2019 pencilled in expectation of slower 2018 GDP growth of 4.8% compared with 5.9% in 2017. For 2019, MOF expects a tad faster GDP growth range for 2019 of 4.9%. Growth for 2019 is expected to be aided by domestic demand, but on the other hand pressure on growth is a more controlled public sector and slower expected external trade. Official growth forecasts are in line with our view of 4.8% growth for both this year and next year.

Meantime, the government expects inflation at 1.5%-2.5% range in 2018 (3.7% in 2017) and higher towards 2.5%-3.5% range in 2019. This is partly due to base effects following the 3- month tax holiday this year and will be subjected to uncertainties in global oil prices and FX movements. Overall, the MOF’s forecast is mostly in line with ours, as we expect inflation to pick up to 2.5% next year from a 1.4% estimate in 2018. With growth subdued there should be little pressure for Bank Negara to hike interest rates in 2019, except if growth threatens to exceed target or inflation tests the upper limit of the forecast range. Rates are therefore expected to remain suppressed. This will help keep the stability of the ringgit vs the USD against the backdrop of ongoing monetary tightening by the US Federal Reserve.

Source: BIMB Securities Research - 9 Nov 2018