News Comments

• BNM maintained the OPR rate at 3.25%, as anticipated.

• The MPC expects the global economy to strengthen as global trade continues to show strong growth momentum. In the advanced economies, rising wages and policy support will provide further impetus to growth. In Asia, growth will be supported by domestic economic activity and strong external demand. The MPC acknowledges that volatility may reemerge following recent adjustments to financial markets. Nevertheless, while trade tensions have risen, risks to global growth outlook remain balanced.

• For Malaysia, growth prospects will be sustained by positive global growth outlook and its spillover to the domestic economy. The additional impetus from the external sector is anticipated to maintain Malaysia’s strong growth momentum. On the domestic demand front, growth will be underpinned by favourable income and labour market conditions as well as sustained investments in manufacturing and services sectors.

• On inflation, BNM expects inflation to average lower in 2018, on expectations of a smaller effect from global cost factors and ringgit appreciation. Underlying inflation, as measured by core inflation, is also projected to moderate due to improving labour productivity and ongoing investments for capacity expansion.

• On the financial market front, markets have been resilient while ringgit has strengthened to better reflect the economic fundamentals. The growth of financing to the private sector has been sustained and supportive of economic activity.

• We feel that the tone of the latest MPS is neutral.

• On growth prospects, while BNM kept mum on the trajectory of Malaysian economic growth in 2018, they sounded more optimistic on global growth and domestic economic activity prospects. Overall in 2018, BNM expects growth to remain strong, driven by external and domestic factors. We anticipate growth to remain commendable at 5.3% (2017: 5.9% yoy), with a possibility of higher-than-expected growth should global growth surprise on the upside.

• Similar to BNM, we anticipate inflation to average lower in 2018 on expectations of smaller effect from global cost factors. The Committee also acknowledged that stronger ringgit will mitigate import costs. Importantly, BNM also noted that underlying inflation as measured by core inflation is expected to moderate.

• The MPC said that the degree of monetary accommodativeness is consistent with steady economic growth and lower inflation. On this note, we opine that BNM is comfortable in maintaining the OPR at its current level for now. Our base case is for BNM to remain on hold for the rest of 2018 unless growth and inflation surprise on the upside.

Source: Hong Leong Investment Bank Research - 8 Mar 2018