The MPC maintained the OPR at 3.25%, as anticipated. The tone of MPS was neutral. On the global front, the MPC saw a broader base and synchronised recovery across regions. This is expected to have positive impact on Malaysia’s economy, supported by continued expansion in private sector activity. On the domestic front, MPC anticipated domestic demand to be sustained by consumption and investment activity. Inflation is expected to remain moderate this year. Despite the global financial market volatility, BNM said domestic financial markets have remained resilient. The MPC said 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.

DATA HIGHLIGHTS

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

The MPC stated that the global economy remains strong with growth being more broad-based and synchronised across regions. Financial markets continue to face intermittent volatility amid rising trade tensions. The MPC expected global growth prospects to remain balanced although there are risks should trade and geopolitical tensions worse.

For Malaysia, latest indicators point towards continued expansion in private sector activity and exports. Exports are expected to continue benefitting from the positive momentum in global growth and trade activity. On the domestic front, private consumption will continue to be driven by higher income and better labour market conditions while investment is projected to be sustained by implementation of ongoing infrastructure projects and capacity expansion by firms.

On inflation, BNM expected inflation to remain moderate for the year as a whole. Core inflation, is also projected to remain moderate amid stable demand conditions. Despite intermittent global financial market volatility, domestic financial markets have remained resilient. The Committee reiterated that Malaysia’s economic fundamentals are firmly anchored, financial sector remains strong and monetary & financial conditions continue to be supportive of economic growth in post-election environment.

HLIB’s VIEW

We feel that the tone of the latest MPS was neutral. On global growth prospects, the Committee sounded more upbeat on the sustainability of global growth and trade activities. This is expected to have positive impact on Malaysia’s economic growth prospects, further supported by continued expansion in private sector activity. We anticipate growth to remain commendable at 5.3% (2017: 5.9% yoy). We maintain the GDP forecast pending details on Pakatan Harapan’s implementation plans.

Similar to BNM, we anticipate overall inflation to average lower in 2018 on expectations of smaller effect from global cost factor as we opine the recent sharp rise in global oil price is due to geopolitical factors. Importantly, core inflation remains steady.

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 inflation surprises on the upside.

Source: Hong Leong Investment Bank Research - 14 May 2018