OVERVIEW

● OPR unchanged. Leaving little guess work for the market, Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 3.25% yesterday. The rate decision has been consistent for the past thirteen odd months and in line with consensus and house expectations. Similarly, the statutory reserve requirement rate stays at 3.50%. The next MPC meeting will be on 6 and 7 of May.

● Tone hints on rising downside risk. The only way the market could second guess BNM’s next move is to scrutinise the tone of the official statement. This time round BNM appear to sound a bit more concern on the current state of the economy due to “heightened uncertainties”. This implies that it perceived the downside risk may have risen a notch from the previous statement. In the statement it warned that “materialisation of downside risks from unresolved trade tensions, heightened uncertainties in the global and domestic environment, and prolonged weakness in the commodity-related sectors could further weigh on growth.”

● An official growth revision a possibility. The above quote preceded a statement that “baseline forecast is for the Malaysian economy to remain on a steady growth path.” However, the very fact that the global economic trajectory is deteriorating as reflected in the latest global PMI growth data suggest that the current growth assumption may require a relook and the official growth forecast may need to be tweaked to reflect the increasingly gloomy reality. Last month, we have revised our GDP growth forecast for 2019 to 4.5% from 4.7% to reflect the rising uncertainty. Nonetheless, the government remained confident that it could achieve a higher growth target of 4.9% in 2019 from 4.7% in 2018.

● Preparing for a possible downturn but probability of a rate cut remains low. BNM has toned down its inflation expectation in 2019 even further to “stable”, from “moderately higher” previously and “inflation is projected to increase” end of last year. Coupled with a fair warning that the global economy is slowing and a dovish US Fed, this may provide justification apart from creating ample room for a rate cut. At this juncture, we do not see the need for BNM to do so lest it triggers a bigger capital outflow and unnecessarily weakens the Ringgit. Barring a major external shock, we expect the OPR to remain at 3.25% this year.

Source: Kenanga Research - 6 Mar 2019