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Economists see room to cut interest rates

PETALING JAYA: There is room for Bank Negara to cut interest rates to support Malaysia’s economic growth even if inflation rises in the latter part of the year, economists say.

According to AmBank Research, there is a strong case for the central bank to lower the benchmark overnight policy rate (OPR), which commercial banks refer to in pricing their lending rates, as signs continue to point to moderating economic growth.

“With a weak underlying inflationary pressure added with the risk of a slower economic outlook, we expect Bank Negara has a strong case for policy easing. The question is whether it will move ahead of the curve or otherwise?” AmBank Research wrote in its report yesterday.

“We expect inflation number to improve gradually as we move ahead partly supported by the low base. Key macro data that unveils current economic conditions and more importantly forward looking are still exhibiting signs of weakness,” the brokerage explained.

The OPR has been maintained at 3.25% since January 2018, after the central bank raised the benchmark rate by 25 basis points from 3%.

Meanwhile, CIMB Research saw increasing downside risks to the OPR.

“We reiterate our headline inflation forecast of 1.8% for 2019, which sits below Bank Negara’s medium-term inflation target of 2%-3%.

“We are currently reassessing our end-2019 OPR forecast of 3.25%. with risks to the downside, following a more-dovish-than-expected shift in the US Federal Reserve’s monetary policy guidance on March 20,” the brokerage explained in its report yesterday.

Malaysia has fallen into the deflationary region since early this year, with the headline inflation, as measured by the consumer price index (CPI), declining for two consecutive months.

Data released by the Statistics Department last Friday showed the CPI in February fell 0.4%, compared with a decline of 0.7% in January.

Meanwhile, Public Investment Bank (PIB) Research said it expected headline CPI to eventually move into the positive region, due in part to low base effects.

“We cautiously expect a rebound in 2019 CPI driven by unfavorable base effect, full- year impact of new indirect tax and the turnaround in oil prices,” PIB Research said.


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