KUALA LUMPUR, July 6 — OCBC Treasury Research expects Bank Negara Malaysia (BNM) to keep the Overnight Policy Rate (OPR) on hold for the rest of this year, after maintaining the rate status quo at 3.0 per cent today.
However, it noted that the risk to the forecast is overly hawkish global central moves as well as upward adjustments to subsidised prices, particularly fuel.
In a note today, OCBC said BNM’s decision was in line with consensus and its expectations.
“Following BNM’s surprise 25-basis point hike at its May 3 meeting, our view was that incoming weaker activity data and easing inflation will allow the central bank room to remain on hold. Indeed, this proved to be the case,” it said.
According to OCBC, BNM acknowledged ‘the Malaysian economy expanded at a more moderate pace in recent months as exports were weighed down by slower external demand’.
“In fact, it removed its assessment from its May 3 meeting that ‘risks to the domestic growth outlook are relatively balanced’.
“BNM, however, held onto its expectation of ‘resilient domestic demand’ being the main driver of growth for the rest of 2023. Specifically, it noted that ‘tourist arrivals have been steadily improving, and are expected to continue rising’,” OCBC highlighted.
The bank opined the bigger change is in BNM’s assessment of inflationary pressures.
Specifically, it said BNM noted at its May 3 meeting ‘the balance of risk to the inflation outlook is tilted to the upside’ but did not include such an assessment at its July 6 meeting.
“It did, however, maintain the ‘risks to the inflation outlook remain highly subject to the degree of persistence in core inflation, changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments’,” said OCBC.
BNM stated that its policy stance is still ‘slightly accommodative’, similar to its May 3 meeting, and stressed it will remain data dependent ‘to inform the assessment on the outlook of domestic inflation and growth’.
It added the central bank, specifically, has noted it ‘sees limited risks of future financial imbalances’.
“As such, we believe BNM is now more sanguine about the outlook on growth and inflation but has stopped short of sounding less hawkish.
“This is justified, in our view, not just by external factors including the continued hawkish drumbeat of global central banks but also by domestic factors including sticky core inflation pressures and the inflationary impact of potential changes to the government’s subsidy policies.
“Our forecast, therefore, remains for BNM to keep OPR on hold for the rest of this year,” it said.
— Bernama
