Economic Update - BNM stands pat on OPR; lower odds of a hike
In its last meeting of the year, Bank Negara Malaysia (BNM) left the overnight policy rate (OPR) unchanged at 3.25%. This was widely expected by us and the market given the recent moderation in macroeconomic indicators such as exports and industrial production, as well as a more cautious external outlook. BNM continues to balance the risks between domestic growth and inflation, while looking out for financial imbalance risks. As such, BNM is likely to keep interest rates on hold to support domestic demand in 2015.
News
BNM kept its overnight policy rate (OPR) unchanged at 3.25%. This follows a hold in Sep and a 25bp hike in Jul this year.
Analysis
BNM has turned more cautious on the external outlook amid higher downside risks to global growth and as exports have shown signs of moderation. However, it still expects the economy to remain on a steady growth path, with domestic demand being a key growth driver. Private investment would remain robust and broad-based by both private and public sectors, but private consumption is expected to moderate. Inflation is expected to remain above its long-term average for the rest of this year and next year due to domestic cost-push factors. BNM reaffirmed that the absence of external price pressures and more moderate demand conditions would mitigate the impact of higher cost adjustments on headline inflation.
Of note, it did not repeat the line – "Further adjustment to the degree of monetary accommodation may be taken..." – which was there in the previous monetary policy statement (MPS) in Sep. In the Nov statement it mentioned that “the current stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions.”
Implications
We think the tone and language of the statement amid moderating growth conditions and more cautious outlook indicate that the odds of a rate hike next year are lower. Furthermore, inflation risks are seen to be cost-driven while demand-related pressures have abated. However, the outlook could change if private consumption turns out to be more resilient than expected amid higher government cash handouts, which will be distributed in three tranches next year, and a longer list of GST exempted items, or if the risks to financial imbalances increase. It is quite apparent from this MPS that the priority is on safeguarding the stability of household consumption and domestic growth. We believe the extent of the moderation would be a key factor in the OPR decision in 2015.
Source: CIMB Daybreak - 07 November 2014
In its last meeting of the year, Bank Negara Malaysia (BNM) left the overnight policy rate (OPR) unchanged at 3.25%. This was widely expected by us and the market given the recent moderation in macroeconomic indicators such as exports and industrial production, as well as a more cautious external outlook. BNM continues to balance the risks between domestic growth and inflation, while looking out for financial imbalance risks. As such, BNM is likely to keep interest rates on hold to support domestic demand in 2015.
News
BNM kept its overnight policy rate (OPR) unchanged at 3.25%. This follows a hold in Sep and a 25bp hike in Jul this year.
Analysis
BNM has turned more cautious on the external outlook amid higher downside risks to global growth and as exports have shown signs of moderation. However, it still expects the economy to remain on a steady growth path, with domestic demand being a key growth driver. Private investment would remain robust and broad-based by both private and public sectors, but private consumption is expected to moderate. Inflation is expected to remain above its long-term average for the rest of this year and next year due to domestic cost-push factors. BNM reaffirmed that the absence of external price pressures and more moderate demand conditions would mitigate the impact of higher cost adjustments on headline inflation.
Of note, it did not repeat the line – "Further adjustment to the degree of monetary accommodation may be taken..." – which was there in the previous monetary policy statement (MPS) in Sep. In the Nov statement it mentioned that “the current stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions.”
Implications
We think the tone and language of the statement amid moderating growth conditions and more cautious outlook indicate that the odds of a rate hike next year are lower. Furthermore, inflation risks are seen to be cost-driven while demand-related pressures have abated. However, the outlook could change if private consumption turns out to be more resilient than expected amid higher government cash handouts, which will be distributed in three tranches next year, and a longer list of GST exempted items, or if the risks to financial imbalances increase. It is quite apparent from this MPS that the priority is on safeguarding the stability of household consumption and domestic growth. We believe the extent of the moderation would be a key factor in the OPR decision in 2015.
Source: CIMB Daybreak - 07 November 2014
