OCBC expects BNM OPR cut in July


Oversea-Chinese Banking Corp Ltd (OCBC) is retaining its expectations that Bank Negara Malaysia (BNM) may cut the Overnight Policy Rate (OPR) as early as July 2019, rather than in the upcoming May 2019 Monetary Policy Committee (MPC) meeting scheduled for today.

Its economist Alan Lau believes BNM may wait to monitor the situation a bit longer before making a decision to cut the OPR, especially with the return of US-China trade tensions and the US dollar’s strength.

It also said the language of the central bank’s March 2019 statement may appear only to go so far as to indicate an even chance of a May 2019 cut.

“That said, after the so-called ‘surprise cut’ in July 2016, the next time that BNM moved in January 2018, they had indicated this decision in stronger language in the prior December 2017 statement.

“Another major concern that may underlie BNM’s decision to cut could be regarding the growth situation, where the Industrial Production Index for the first quarter of 2019 has been on a decline and it has usually been reflective of weaker GDP growth to come,” he said in a note titled “Will BNM be the first in Asean to cut rates?”.

On the other hand, Lau said concerns have also emerged regarding the value of the ringgit as the currency has faced a series of pressures recently.

“A rate cut could likely add some pressure on a further upward movement for the US dollar-ringgit.

“However, a weakening ringgit is not necessarily a negative on the real economy, given that inflation is subdued and that its effect on exports may be at least neutral,” said Lau.

Meanwhile, he said the US Federal Reserve’s direction is unclear, but he believes it will also impact BNM’s decision as the 10-year real rates difference between Malaysia and the US has been quite wide and has climbed substantially, although it could be partially attributable to the weak inflation in Malaysia.

On March 5, BNM maintained the OPR at 3.25%. — Bernama