BNM Retains OPR at 3.00%

As predicted, Bank Negara Malaysia (BNM) Monetary Policy Committee (MPC) has decided to retain the Overnight Policy Rate (OPR) at 3.00% yesterday. This is the second time the MPC decided to hold the rate steady following a rate cut at May’s MPC meeting. The next and the last MPC meeting for the year will take place on 4-5 Nov, 2019. The original version of this article was published at rakutentrade.my

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Contents

OPR Held Steady

Policy Decision Expected

An expected policy decision but the consensus seemed to be rather split between locally based economists who mostly had called a hold and their foreign counterparts who seemed eager to see BNM cut rates. According to the latest Bloomberg consensus survey on the OPR, 8 out of 24 economists expected a rate cut and all of them are from foreign-based banks and brokerages.

BNM Reaffirms Growing Concern on Growth

Nevertheless, we observed there has been a rise of concern by BNM regarding the economic growth.

“The recent escalation of trade tensions points to weaker global trade going forward, with increasing signs of spillovers to domestic economic activity in a number of countries.”

Though BNM reaffirmed that its baseline growth projection for 2019 remains unchanged, within the range of 4.3% – 4.8%, it warned that it still could be subjected to further downside risks from worsening trade tensions, uncertainties in the global and domestic environment, and extended weakness in commodity-related sectors. On balance, this would suggest that the probability for the official growth forecast to err on the lower end of the range is much higher.

Leaning Closer to Another Cut

As in the policy statements prior to May MPC meeting which led to a rate cut decision, the signal by BNM seemed to have a similar pitch and increasingly leaning to a more dovish tone amid a myriad of factors chief of which is the escalation of trade tension between US and China as well as South Korea and Japan.

Another reason to nudge BNM to decide on a rate cut would be the Fed being pressured by President Donald Trump to be more aggressive in cutting interest rates. The market is expecting another Fed rate cut at its upcoming Federal Open Market Committee (FOMC) meeting on 17-18 Sep. To hasten the Fed and other central banks to further cut interest rates, the European Central Bank (ECB) yesterday had cut its deposit interest rate further, launching a new round of monthly bond purchases or quantitative easing (QE) to stimulate a flagging eurozone economy. Outgoing ECB President Mario Draghi in its nextto-last meeting expectedly delivered a 10 bps cut to the deposit rate, pushing it to minus 0.5%. Hence, we are putting a 75% probability that BNM would cut the OPR at its last meeting this year in November by another 25 bps to 2.75%.

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