Friday, 14 July 2017

(NST) Bank Negara maintains OPR at 3pc

AS widely anticipated, Bank Negara Malaysia has left borrowing costs unchanged in its latest monetary policy decision.

The Overnight Policy Rate (OPR), the benchmark interest rate, was left unchanged at 3.00 per cent as it continued to support economic activities.

Although the central bank has indicated a neutral stance in the monetary policy and the overall market has maintained the OPR at 3.00 per cent till year end, economists do not rule out the possibility of a rate hike.

UOB Bank has not ruled out the possibility of a hike if the economy continues to power strongly while AmBank Group says there is a 45 per cent chance for OPR to be raised by another 25 basis points.

Bank Negara has stood pat with the OPR at 3.00 per cent since the 25 basis points cut in July last year.

Citing improved domestic economy activities in the first quarter, the central bank said yesterday that the economy is expected to register higher growth this year.

The economy grew by a robust 5.6 per cent in the first quarter as growth was lifted by stronger domestic demand with additional impetus from exports.

“Going forward, the more favourable global growth prospects would lead to sustained export performance and generate positive spillovers to the domestic economy.“

Private consumption will be underpinned by higher wages and employment.

“The improved investment outlook is being driven by new and ongoing infrastructure projects, and stronger capacity expansion in the manufacturing and services sectors,” it added.

Headline inflation moderated to 3.9 per cent in May, and the level is expected to moderate in the second half of the year, mainly reflecting the waning effect of global cost factors.

“Underlying inflation, as measured by core inflation, will be sustained by the more robust domestic demand but is expected to remain contained.”

In its latest assessment, it described the domestic financial market as resilient.

“The ringgit has remained stable with a more balanced demand and supply of foreign currencies following the implementation of the two financial market development measures.”

On the global front, it noted the strengthening of global economy underpinned by industrial activity and global trade.

In terms of risks to its global outlook, it cautioned that they could stem from political and policy uncertainties in the major economies, geopolitical and financial market developments, and volatility of commodity prices.

AmBank Group chief economist Anthony Dass cautioned that although the figures from manufacturing output, export and manufacturing sales are strong for Malaysia, the Nikkei Malaysia Manufacturing Purchasing Managers’ Index had weaken last month.

“The data seems to support our view that the underlying demand may not be that strong and also probably explains why companies are streamlining their stocks as reflected by the drop in inventory purchases.”

UOB Bank economist Julia Goh said one of the reasons for a hike would be when wage pressures filter into higher inflation given today’s reference to demand-led inflation.