Standard Chartered Global Research believes that Malaysia’s central bank will keep the Overnight Policy Rate (OPR) unchanged at 3.25% at tomorrow’s monetary policy committee meeting.
“Our long-held view had been for the central bank to ease policy rates this year. However, following the largely neutral tone of the last monetary policy statement, we expect it to maintain status quo next week and cut rates only in September,” it said.
It also believes that Bank Negara Malaysia (BNM) would prefer to communicate changes to its monetary policy stance prior to sanctioning rate changes.
The research house noted that a case for a rate cut this year is valid given the bleak outlook for external and domestic growth.
While private consumption serves as the key growth support, it expects worsening the labour-market conditions to depress consumer sentiment.
Notably, private consumption dipped to 5.3% year-on-year in Q1 2016 compared to the first quarter average of 7.4% in 2011 to 2015. The unemployment rate rose to 3.5% in March, or its highest level since June 2010.
“Job vacancies are at a multi-year low, and we estimate that manufacturing, retail and wholesale trade payrolls rose only 3.1% year-on-year in March, versus an average of 8.3% from 2011 to 2015. Slower property price increases and financial-market volatility may also dampen spending sentiment,” it said.
StanChart Global Research held a neutral outlook on Malaysian Government Securities (MGS) due to defensive foreign positioning and higher global risk aversion following Britain’s exit from the European Union.
It expects growing ringgit volatility to trigger further outflows from short-end MGS and BNM bills and local demand for fixed income assets to be constructive based on a weaker macroeconomic outlook and ample cash held by long-term investors.
“Pressure on the central bank to ease further this year has increased significantly, in our view. Overall, limited inflationary pressure and onshore investors’ relatively high cash levels continue to support the local bond market,” added StanChart Global Research.
It noted that the one-year onshore IRS significantly dropped since the Brexit vote. The market has also started to consider a more dovish policy stance from BNM. StanChart Global Research held a short-term “neutral” outlook on the ringgit.
Image: Sourced from exchangerate.my
Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email mangales@propertyguru.com.my
