Analysts offered mixed views on the outlook of the Overnight Policy Rate (OPR), with Hong Leong Investment Bank (HLIB) Research expecting it to be kept at three percent and MIDF Research expecting one rate cut this year.
HLIB economist Sia Ket Ee noted that the Monetary Policy Committee’s (MPC) tone last Thursday (19 January) was broadly neutral, with an increased optimism on the global economy and positive implications on the country’s exports, reported The Sun Daily.
In fact, the MPC believes the degree of accommodation is consistent with the stable inflation and steady growth of economic activity at the present level of the OPR.
“We take this as a signal that BNM prefers to leave the OPR unchanged so long as the outlook for gross domestic product (GDP) growth and core inflation falls within the official projection range,” said Sia.
Notably, the GDP is forecast to grow by four to five percent this year.
He revealed that the central bank’s expectation on growth prospects is in line with the research house’s expectation of the GDP expanding by 4.5 percent this year, based on stable services, strong construction and a recovery in the primary sector.
Inflation is expected to average 2.7 percent in 2017, on the back of sustained food inflation, weaker ringgit and higher fuel prices. The Consumer Price Index, however, is expected to exceed three percent in early 2017, due to low base effect of oil price last year, said Sia.
Meanwhile, MIDF Research maintained its expectation of one rate cut this 2017 to support the domestic economy and boost employment level in the event the growth of domestic sector slows down.
“This will lead to Malaysia’s benchmark interest rate to 2.75 percent by year-end 2017. At the same time, we are maintaining our GDP growth forecast of 4.3 percent and inflation at 2.8 percent for the year,” it said.
The central bank maintained the OPR last Thursday (19 January), as the rebound in global economic conditions have helped improve Malaysia’s economy as well as the global trade activity, said MIDF Research.
BNM, however, warned that the downside risk to global growth continues, mostly due to the risk of geopolitical developments, commodity price volatility and protectionist policies.
“We opine that between the three, the one risk that has the highest possibility of materialising is on protectionism bias …though the main question is to what extent will he actually increase import tariff to 35 percent or will he settle at imports substitution? We think that the latter is more likely, which should lead to a slight slowdown in global trade activity,” said MIDF Research.
Diane Foo Eu Lynn, Senior Content Specialist at PropertyGuru, edited this story. To contact her about this or other stories email diane@propertyguru.com.my
