OVERVIEW

● Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 3.25% at its fifth monetary policy meeting this year yesterday. The Monetary Policy Committee (MPC) decision was widely expected. The statutory reserve requirement (SRR) rate was also left unchanged. The next monetary policy meeting is on 8 November.

● From the released statement, the MPC’s view on the Malaysian economy shifted to slightly more sanguine from a somewhat pessimistic outlook in the previous meeting in July. It said, “On balance, the Malaysian economy is expected to remain on a steady growth path”, compared to the previous statement which it highlighted that “the balance of risks to the outlook has tilted to the downside”. Nonetheless, BNM continue to remain cautious on both fronts as it stated that “the economy faces downside risks stemming from heightened trade tensions, prolonged weakness in the mining and agriculture sectors and some domestic policy uncertainty”.

● We maintain our view that BNM would hold the overnight policy rate at 3.25% for this year. Supporting growth and price stability would still be BNM’s focus and priority in spite of further capital outflows in August amid the emerging market rout caused by spill overs from financial turmoil in Turkey and Argentina, as well an impending US Fed rate hikes. Apart from assuring that its monetary operations would continue to provide sufficient liquidity BNM has recently (17 August) relaxed its FX administration rules to help support businesses manage administrative and compliance cost.

Source: Kenanga Research - 6 Sept 2018