PETALING JAYA: Analysts have mixed views on whether Bank Negara Malaysia (BNM) will announce another interest rate cut this year.
JPMorgan expects external headwinds to put a lid on economic growth and maintained its projection of a 25 basis point (bp) cut at the MPC meeting on Sept 12.
“In our view, the recent dovish shift in developed market central banks and the downside risks to growth could open room for policy easing in the region, including Malaysia. Thus, we continue to look for a 25bp cut in the policy rate at the September 12 MPC meeting, though this call remains adaptive to the evolution of global financial conditions and support from domestic drivers of growth,” it said.
It expects the country’s gross domestic product (GDP) growth to slow slightly to 4.3% this year from 4.7% last year.
Nonetheless, MIDF Research expects BNM to keep the Overnight Policy Rate (OPR) unchanged at 3% for the rest of 2019, as there will be less pressure from both domestic and external fronts.
In its research report, MIDF Research said that the central bank’s decision to maintain the OPR at its MPC meeting today was in line with its expectation.
“The 25 basis point cut in May 2019 is sufficient to boost economic growth particularly domestic demand. As long as gross domestic product growth is more than 4% and core Consumer Price Index still positive, we opine no further change in monetary stance is required at this juncture. In addition, the Fed has signalled possible rate cut by at least once this year.”
It said that the rate cut in May would improve both domestic consumption activities and investment particularly in the second half of 2019 (2H19) while the strong momentum in private consumption and services sector will drive the economy into a good position this year.
In addition, leading indicators such as leading index and business tendency survey point towards better growth trajectory in 2H19. The research house expects the economy to expand by 4.9% this year, while headline inflation rate is expected to average at 0.6%, lower than the 1% last year.
Food inflation was expected to provide upside pressures to the overall inflation while transport inflation was anticipated to recover significantly in 2H19 due to rising global crude oil prices, more targeted domestic petrol subsidy and removal of the RON95 fuel price cap.
“However, we note that the developments in these areas have been muted. Even with the removal of the RON95 price cap, the prices are expected to be on the low side in line with declining global crude oil prices which are affected by the ballooning trade tensions, among others.
“We anticipate inflationary pressure mainly from fuel-related items to remain weak in line with our expectation of Brent crude oil price at US$70 per barrel for 2019,” said MIDF Research.
OCBC Bank economist Alan Lau expects BNM to hold the benchmark rate for the rest of 2019, but does not rule out additional cuts if growth risks worsen.
“In particular, as highlighted these include those related to global uncertainties and weakness in the commodity sectors. We probably may still have to wait further down the road before we get an idea on how much such risks have worsened given the current trade truce between the US and China,” he said.
In its statement, BNM maintained its projected GDP growth range at 4.3-4.8%. Lau noted that a possible restart of the East Coast Rail Link project could provide further boost to growth.