Economists Julia Goh and Loke Siew Ting at UOB Group assessed the recent decision by the BNM to hold rates at 3.00%.
“Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) on hold at 3.00% today. The statutory reserve requirement ratio (SRR) was kept unchanged at 3.50%. This came in line with ours and market consensus”.
“BNM kept a neutral tone suggesting no further rate cuts for now. Malaysia’s strong growth of 4.7% y/y in 1H 2019 was underpinned by resilient private spending and broad-based expansion across major sectors. Despite expectations of higher average inflation in the remaining months of the year and into 2020, underlying inflation is expected to remain stable. BNM maintained its baseline growth projection at 4.3% - 4.8% for 2019, subject to downside risks from global uncertainties, worsening trade tensions, and commodity weakness”.
“We maintain our year-end target for the OPR at 3.00%, implying no further cuts this year. This is premised on a stable growth trajectory in 2H 2019 and assumes that a protracted negotiation between US and China will produce some resolution but existing tariffs may not be removed… Over the near term, we expect USD/MYR to trade alongside Asia FX, in line with the developments of the US-China trade talks. Key event risk to watch for is FTSE Russell’s decision whether to exclude Malaysia from its World Government Bond Index (WGBI) on 26 Sep.”.
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