Benchmark interest rate stays at 3.25%
PETALING JAYA: Bank Negara has left the overnight policy rate (OPR) unchanged at 3.25% at the first meeting of its monetary policy committee (MPC) for this year.
Bloomberg’s current poll of 24 economists showed that most expect the central bank to maintain the benchmark interest rate, which commercial banks refer to in pricing their lending rates, at that level throughout the year amid the softening economy.
Only five economists expected Bank Negara to raise the OPR by 25 basis points (bps) to 3.5% by the second half of the year, while one conversely projected a 25-bps cut to 3% in the third quarter of 2019.
In a statement yesterday, Bank Negara noted that while there were downside risks to growth, latest indicators suggest sustained economic expansion for 2019, driven by domestic demand.
“With moderating global growth, the external sector is likely to soften. Risks to growth are tilted to the downside, primarily from potential escalation of trade tensions and commodity-related shocks.
“On balance, the Malaysian economy is expected to remain on a steady growth path in 2019,” the central bank said.
“Underlying inflation is expected to remain contained in the absence of strong demand pressures,” it added, noting that the headline inflation this year is expected to average moderately higher than the 1% in 2018.
In justifying its decision to keep the OPR unchanged at 3.25% for at least until the next MPC meeting, Bank Negara said at the current level, the degree of monetary accommodativeness was “consistent with the intended policy stance”.
“The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation,” it said.
The MPC is expected to announce its next policy decision on March 5.
MIDF Research has projected the OPR to remain unchanged at current levels throughout the year.
“We opine that change in monetary stance is not required at this juncture, as it would affect the trajectory of domestic growth,” the brokerage said in its note.
“Furthermore, the United States has indicated that its interest rate is nearing the neutral rate, suggesting that the central bank is preparing to slow down its normalisation exercise,” it added.
Since there would be less pressure from both domestic and external fronts, MIDF expected Bank Negara to maintain the OPR at 3.25%, barring any surprises in domestic economic growth.
Meanwhile, AmBank Group chief economist Anthony Dass said there was still room for Bank Negara to lower the OPR by 25 bps to 50 bps this year, given the country’s low inflationary pressure and the less aggressive monetary stance by the US Federal Reserve (Fed), in order to support Malaysia’s slowing economy.
“Slower global growth will dampen our exports. Capital expenditure is modest due to lower public investment expenditure.
“Inflation environment is low, projected at 1.5%. A weakening US dollar should see the ringgit strengthen and help reduce input cost and put a lid on upwards inflationary pressure,” Dass explained.
“We foresee limited room for the US Fed to maintain its aggressive monetary stance employed in 2018, and likely to raise rates one or two times in 2019, while we expect the European Central Bank to maintain the current monetary policy rate, given that the euro economy is expected to slow down,” he pointed out.
In addition, Dass noted that China is expected to lower its reserve required ratio and possibly even the policy rate.