BNM to keep OPR at 3 pct until year-end - Research firms

Hong Leong Investment Bank (HLIB) and CGS-CIMB Securities Sdn Bhd said the outlook was in view of the anticipation for growth and inflation to moderate in the second half of the year.

HLIB said following the stronger-than-expected gross domestic product performance in the first quarter of 2023 (1Q 2023) at 5.6 per cent year-on-year (YoY), the Malaysian economy's momentum has slowed in recent months as exports contracted on weaker external demand.

Nevertheless, the deterioration in trade data was within BNM's expectation, it said.

"While the growth outlook is subject to downside risks stemming from external developments, upside risks mainly stem from domestic factors including higher-than-expected tourism activity and fast project implementation," it said in a note today.

CGS-CIMB believed the balance of risk to growth is now tilting towards the downside, with the likelihood of a global slowdown appearing more pronounced than previously expected, especially given the muted impact from China's reopening.

The recent softening in exports might shift BNM's narrative towards being more neutral, at least until exports start to show signs of improvement, it reckoned.

BNM kept the OPR at 3.00 per cent at its July 5-6 Monetary Policy Committee (MPC) meeting, after raising by 25 basis points (bps) at the May 2-3 meeting.

Similarly, Maybank Investment Bank Bhd projected OPR would be kept at 3.0 per cent, with cautiously constructive view on growth and inflation.

"For the remainder of this year, the economy will be driven by resilient domestic demand as favourable labour market conditions, especially in the domestic-oriented sectors, underpinned consumer spending plus rebounds in tourist arrivals and thus tourism-related activities, on top of progress in multi-year infrastructure projects supporting investment activity," it said.

Meanwhile, Public Investment Bank Bhd expects BNM to adopt a cautious approach, closely monitoring significant developments in central bank policies.

"In the event that Malaysia's domestic economy exceeds expectations, it is not implausible forthe central bank to consider optimising its monetary tools by gradually normalising the Statutory Reserve Requirement to 3.00 per cent in the first half of 2024.

"However, any changes to the current monetary policy stance will thus be subject to rigorous evaluation based on further improvements in macroeconomic conditions, particularly the ongoing recovery of the labour market and a sustained expansion of domestic demand and pace of inflationary pressures," it added.