The MPC maintained the OPR at 3.25%, as expected. The tone of MPS was more dovish than expected with increased focus on downside risks. On the global front, the MPC saw signs of moderation with slower growth extending to emerging economies. On the domestic front, MPC anticipated growth to remain on steady path driven by private sector. However, the balance of risk is tilted to downside. On CPI, BNM noted that negative inflation was due to global oil prices while underlying inflation remained stable. The MPC said the current level of OPR is consistent with the intended policy stance. However, they also recognised the downside risks and will continue to monitor and assess the risk. On this note, we opine that the Committee is signalling its willingness to reduce the OPR should global risks escalate, and growth worsen. For now, we are maintaining our expectation for BNM to retain the OPR at 3.25% pending evolution of trade talks and impact to global and domestic growth.

DATA HIGHLIGHTS

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

On the global front, the MPC said that global growth momentum is showing signs of moderation with the earlier deceleration in major advanced economies now extending to emerging economies. The MPC further stressed that unresolved trade tension remains a key source of downside risks. Other political and policy uncertainty could also weigh on the overall outlook.

On the domestic front, the MPC reiterated that the Malaysian economy is expected to be sustained in 2019 with continued support from private sector spending. Nevertheless, external sector is anticipated to soften. Following the release of weaker economic data in January 2019 (slower loan growth, lower business confidence in 1Q19) and ongoing uncertainty in global and domestic environment, we opine BNM may downgrade the official GDP forecast to a lower but steady growth path in 2019 (current: +4.9% YoY; HLIB: 4.6% YoY; 2018: +4.7% YoY).

The MPC explained that the negative inflation reading in January of -0.7% YoY was due mainly to supply side factors arising from lower global oil prices. They continue to expect inflation to remain low following policy measures. Consequently, the Committee expects inflation to be broadly stable compared to 2018. This points to possible downward revision of CPI forecast from current official forecast of 2.5-3.5% (2018: 1.0% YoY). Following the Government’s introduction of lower price ceiling on domestic fuel price on 27th Feb 2019 (RM2.08/litre; previous: RM2.20/litre), we have also downgraded our CPI forecast to 1.5% YoY (previous: 2.0% YoY).

In the final paragraph, the MPC noted that the current level of OPR is consistent with the intended policy stance. Nevertheless, they recognise that there are downside risks. Hence, the MPC will continue to monitor and assess the balance of risks surround the outlook for domestic growth and inflation.

HLIB’s VIEW

The MPC said the current level of OPR is consistent with the intended policy stance. However, they also recognised the downside risks (primarily from unresolved trade tension and domestic uncertainty) and will continue to monitor and assess the risk. On this note, we opine that the Committee is signalling its willingness to reduce the OPR should global risks escalate, and growth worsen. For now, we are maintaining our expectation for BNM to retain the OPR at 3.25% pending evolution of trade talks and impact to global and domestic growth.

Source: Hong Leong Investment Bank Research - 12 Mar 2019