News Comments

• As expected, BNM kept its OPR unchanged at 3.00%.

• The MPS cited global growth has become more entrenched and synchronized across countries as global trade picked up significantly. The strong external demand has led to sustained domestic economic activity in Asia. However, the outlook may be affected by political, policy developments and geopolitical risks.

• For Malaysia, the MPC said growth prospects will be sustained by the more positive global growth outlook and stronger spillovers from external sector to the domestic economy. Private consumption will be supported by improving incomes and better labour market conditions. Investment will be driven by new and ongoing infrastructure projects. Overall, growth is expected to be higher than earlier expected.

• On inflation, BNM maintains its expectations for headline inflation to moderate mainly reflecting the waning effect of global cost factors. The more robust domestic demand could sustain core inflation. Nevertheless, it is expected to remain contained.

• On the financial market, the MPC noted that the ringgit has strengthened to better reflect the economic fundamentals. It reiterated that banking system liquidity remains sufficient while growth of financing has been sustained and is supportive of economic activity.

• The tone of the latest MPS was positive but not hawkish, with more optimistic view given pervasiveness of global growth and its greater potential spillover to the domestic economy.

• On growth prospects, while BNM kept mum on the trajectory of growth in 2H17, it sounded more optimistic on global growth and domestic economic activity prospects. BNM now expects GDP growth for 2017 to exceed its earlier projection of 4.3% - 4.8%. Given the robust external sector, growth in the subsequent quarters will be driven by sustained export performance and its spillover to domestic demand. We maintain our forecast for GDP growth to remain favourable at +5.4% yoy.

• While we continue to project inflation to remain moderate, it could rise in the near-term due to recent trends of higher petrol prices before resuming moderation trend towards the end of the year. We maintain our forecast for CPI to average +3.4% yoy in 2017. We do not think a temporary rebound in inflation will alter BNM’s inflation assessment.

• At the current level of OPR, the MPC said the stance of monetary policy is accommodative. We take this as a signal that BNM still prefers to leave the OPR unchanged despite the better growth prospects. BNM also reiterated that demand pull inflation remains limited (indicated by expectations of contained core inflation) while financing to the private sector is supportive of economic activity.

• We maintain our view of unchanged OPR at 3.00% for the remainder of 2017.

Source: Hong Leong Investment Bank Research - 8 Sept 2017