Unchanged monetary policy is supportive of growth

Keeping the status quo on the Overnight Policy Rate (OPR) reflects positively on the economy, which remains on the growth path supported by easing inflationary pressure following the decision to scrap the Goods and Services Tax (GST).

Bank Negara Malaysia (BNM) yesterday decided to maintain the OPR at 3.25%, a move that was highly expected by economists and research houses.

“This (move) is a boost to growth, especially now that private consumption is steady,” Hermana Capital Bhd CEO and CIO Datuk Dr Nazri Khan Adam Khan (picture) told Bernama.

Besides, he noted, there is no immediate threat of rising inflation as the GST had been removed.

Nazri Khan said the decision also provided stability for investors amid the transition to the new government and its economic policies, as well as the ongoing review of several mega projects.

In a statement yesterday, the central bank said at the current OPR level, the degree of monetary accommodative- ness was consistent with the intended policy stance.

“There were no surprises when BNM left the interest rates unchanged this month,” said ForexTime Ltd global head of currency strategy and market research Jameel Ahmad.

It was largely expected by the market, and the central bank seemed positive overall on Malaysia’s economic growth prospects, he said.

“It is very much true that the local economy is following a positive path and its currency is showing resilience in comparison with other emerging peers at a time when global headlines are being dominated by trade war uncertainties,” Jameel added.

Meanwhile, Standard Chartered Bank in its note recently suggested that BNM might need to hike rates to maintain foreign-exchange stability if the local currency faced strong depreciation pressure on broader weak risk sentiment.

Nazri Khan, however, argued that depreciation happened across the board for all emerging-market currencies.

“The ringgit still has relative strength and performs better than other neighbour currencies. It fell 1% against the dollar this year, compared to the 7% slump of the Philippine peso and a 5% decline for the Indonesian rupiah.

“Don’t forget the oil price and our current account surplus are on the upside momentum, which means we have some support for a stronger ringgit over the medium term,” he explained.

Rakuten Trade Sdn Bhd head of research Kenny Yee, meanwhile, said if there were any weakness in the ringgit, it would only be temporary as foreign funds are expected to return to Malaysia.

“For May and June, we saw an exodus of foreign monies out of Malaysia via equities, as well as bonds. For equities, more than RM10 billion has been taken out by foreign funds, with an additional RM19.5 billion from the bond segment,” he noted.

Yee agreed with Nazri Khan, saying the ringgit depreciated by a mere 0.9% versus the greenback, hence both showing the underlying firmness of and support for the local currency. — Bernama