Kenanga: OPR to remain at 3.25% in 2019


Bank Negara Malaysia (BNM) is expected to maintain the Overnight Policy Rate (OPR) at 3.25% this year, given growth moderation and mild inflationary pressure.

Kenanga Research said the OPR is expected to be unchanged this year as domestic indicators are pointing towards growth moderation and inflation is expected to remain benign on the back of subdued global oil prices.

“We are not surprised if BNM is slowly turning dovish right now and may not hesitate to cut interest rates if external uncertainty turned for the worse.

“The probability for that to happen is low for now,” Kenanga noted in an industry coverage report yesterday.

The research house also expects fewer rate hikes from the US Federal Reserve (Fed) as the American central bank is expected to take a less hawkish stance this year.

It said despite ample foreign reserves, uncertainties arising from external factors could weigh on Malaysia’s growth in the short to medium term.

Tensions persist on the trade war front, though Kenanga remains cautiously optimistic on the outcome following the conclusion of the 90-day trade war truce between the US and China, aided by efforts shown from both parties, including by withholding new tariff hikes and increasing agricultural imports.

The research firm added that negative impacts from the trade war observed thus far — including recent moderation in trade activities of regional and advanced economies, Apple Inc’s revenue forecast downgrade in relation to lower sales in China and manufacturing Purchasing Managers’ Index figures which pointed towards a slowdown in both the US and China — may influence them to conclude the ongoing trade talks with a positive note.

BNM foreign international reserves fell by US$600 million (RM2.46 billion) or 0.6% month-on-month to US$101.4 billion as at Dec 31, 2018, trailing back to a declining mode after a brief rebound to US$102 billion at end-November.

Kenanga said a contraction in foreign reserves was observed during most months of 2018, propelled largely by the unprecedented 14th General Election results in May, ongoing trade war concerns and monetary policy tightening in the US and other advanced economies.

As for the ringgit’s performance, the research house noted the dovish tone conveyed by the Fed is expected to dominate the outlook — signalling a weaker dollar.

“This would reflect a firmer ringgit, supporting our year-end forecast of USD/MYR at RM4.10 (end-2018: RM4.13),” it pointed out.