KUCHING: With continued uncertainties arising from global developments, analysts believe that Bank Negara Malaysia (BNM) will likely maintain its overnight policy rate (OPR) at 3.25 per cent throughout the year.
Of note, on Thursday, BNM had announced that it would maintain its OPR at 3.25 per cent and similary, there was no change in the statutory reserve requirement (SRR) ratio, where the ratio was kept at 3.5 per cent, after a 50 basis point (bps) cut from four per cent in January 2016.
The research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital) said, with slower but still healthy gross domestic product (GDP) growth of 4.2 per cent y-o-y in 1Q16, the Monetary Policy Committee’s (MPC) decision to hold the OPR and SRR unchanged was largely in line with its earlier expectations, despite some slowdown in loan growth and money supply in 1Q16.
It noted that BNM has assessed that “the growth of financing to the private sector is consistent with the pace of economic activity and financing conditions remain supportive of economic growth.”
In a separate report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that the decision to leave the SRR unchanged was probably due to improved liquidity in the domestic financial system.
“However, this does not rule out the possibility of another cut if banking system liquidity concerns recur,” it said.
It further highlighted that since the last MPC meeting, regional central banks in Australia, India, Indonesia and Taiwan have cut their respective policy rates.
Further afield, the European Central Bank (ECB) cut its key interest rate to zero per cent and its deposit rate to negative on March 10.
“In its monetary policy statement, BNM reiterated that the current monetary policy stance continues to be accommodative and supportive of economic activity, although there are downside risks in the global economic and financial environment.
“Given such concerns we view that an adjustment of the monetary policy is a possibility if growth flounders and liquidity conditions worsen,” it opined.
Nevertheless, Kenanga Research said it maintained its base case of no changes in the OPR this year, barring any unforeseen risk to growth.
“Looser monetary policy would only be considered if growth shows real signs of slipping below the four to 4.5 per cent official forecast for 2016,” it added.
Meanwhile, it said the US Federal Open Market Committee (FOMC) is expected to make at most two rate hikes this year, with the next meeting to be held on June 14 to 15.
“The pace of monetary policy tightening is more gradual than the previous cycle,” it noted.
AmInvestment Bank Bhd’s research arm (AmInvestment Research) expect BNM to maintain its OPR and SRR at 3.25 per cent and 3.50 per cent for 2016.
“In fact we have lowered our probability for a rate cut to 60 per cent from 80 per cent previously for both OPR and SRR.
“We find the domestic economy is still on track to meet our growth projection of 4.2 per cent which is within the official growth range of four to 4.5 per cent. Besides, we noticed improving sentiments from both businesses and consumer.
“Also, the household debt/GDP at 89 per cent in 1Q2016 limits the room for further easing. Finally, the onshore liquidity conditions have improved since a 50 basis points (bp) reduction from February 1 2016,” noted the research house.