By NG MIN SHEN / Pic By MUHD AMIN NAHARUL
Bank Negara Malaysia (BNM) may slash the Overnight Policy Rate (OPR) in May amid growing signs of a slowdown in global and domestic economic activities, said Kenanga Investment Bank Bhd (Kenanga IB).
In a research note yesterday, Kenanga IB said the recent slew of indicators pointing towards a protracted demand trend, plus the central bank’s shift towards a more concerned tone on the economy, are compelling signals for a rate cut in the not-too-distant future.
“We are revising our interest-rate outlook towards a view that the Monetary Policy Committee may lower the OPR at its next meeting on May 6 and 7.
“We revise our stance on the OPR from zero rate cut to one rate cut by 25 basis points in 2019,” it stated.
Kenanga IB said the trigger points for a benchmark interest-rate cut include, BNM’s toning down of its inflation expectations to “stable” growth of 0.7% to 1.7%, against previously used terms such as “moderately higher” and “inflation is projected to increase”.
The central bank also slashed its 2019 GDP growth forecast from 4.3%-4.8%, below the Finance Ministry’s bullish projection of 4.9%, while highlighting that the economy is enduring a phase of elevated downside risks to growth arising from both the external and domestic fronts.
“Interestingly, after analysing each of BNM’s monetary policy statements since 2004, indication of heightened downside risks to growth has always preceded or coincided with a rate cut.
“Holding on to the concept of leaning against the wind, fraying demand conditions may have provided a strong basis for BNM to proceed with a looser monetary stance,” Kenanga IB added.