Bank Negara Malaysia likely to keep interest rate unchanged in July

Malaysian central bank is set to meet tomorrow for its interest rate decision. According to a DBS Bank research report, Bank Negarar Malaysia is likely to keep the Overnight Policy Rate on hold at 3 percent. After the insurance cut in the previous policy meeting, whereby the central bank cut the policy rate by 25 basis points, the authority will likely take a “wait and see” approach in the near term to permit the effects of the previous easing to cascade down the system.

Downside risk to growth has risen due to increased uncertainties in the global and domestic environment, trade tensions and extended softness in commodity-related sectors. The Malaysian economy is expected to record a slower growth of 4.5 percent year-on-year in 2019, as compared with the 4.7 percent seen in 2018.

Meanwhile, inflation though likely to rise, is expected to stay manageable. With the U.S. Fed and regional central banks turning increasingly dovish, and BNM having already did a pre-emptive cut, any further monetary easing by the central bank is expected to be conditioned on the U.S. Fed making an outright easing.

“We expect possible rate cuts of up to 50bps in the US by 4Q. With that, expectation is that BNM’s next move could be in November”, added DBS Bank.