BNM keeps interest rate unchanged at 3 pct, likely to stand pat in November

Bank Negara Malaysia kept its Overnight Policy Rate (OPR) on hold at 3 percent today, as was widely anticipated. The policy statement reads as more bearish on the growth outlook, especially on the global front.

The central bank stated that the global economy is growing at a more modest rate in the midst of slower growth in advanced and emerging economies. It also acknowledged “increasing signs of spillovers to domestic activity from weaker global trade”, likely referring to slower investment growth. Recent rise in trade tensions indicate towards softer trade going forward. The central bank seems to be more downbeat on the global economy, noted ANZ in a research report.

Meanwhile, the central bank linked stronger economic growth in the second quarter to resilient private consumption. It expects consumption to stay supportive of economic activity going forward. BNM retailed the GDP forecast for the whole of 2019 at the range of 4.3 percent to 4.8 percent although this projection is subject to “further” downside risks. The BNM likely views deteriorating trade tensions as the main risk to Malaysia’s domestic outlook.

BNM removed the statement that average headline inflation this year is likely to be “broadly stable compared to 2018”.

“We expect BNM to keep rates unchanged at the next meeting on 5 November. However if downside risks to growth materialize, BNM may deliver a 25bp cut in early 2020, especially since there is little room for fiscal support”, added ANZ.