As widely anticipated, the Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has decided to maintain the Overnight Policy Rate (OPR) at 3.00% in its third MPC meeting for this year, aligning unanimous prediction of all 24 respondents in the Bloomberg consensus survey.
Policy statement: The MPC reinstated the previous stance, citing “The monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.” On growth: The MPC observes higher economic activity in the 1Q24, reflected by the latest indicators, propelled by resilient domestic demand and a positive turnaround in exports.
Overall, its growth outlook is fairly balanced, adding that “the growth outlook is subject to downside risk from weaker-than-expected external demand, and larger declines in commodity production”. However, it also highlighted the upside risks “from greater spillover from the tech upcycle, more robust tourism activity, and faster implementation of existing and new projects.” Inflation: The MPC anticipates modest inflation in 2024, citing “broadly reflecting stable demand conditions and
contained cost pressures.” However, the MPC remains data-dependent, stating “the outlook for the rest of the year
is dependent on the implementation of domestic policy on subsidies and price controls, as well as global commodity
prices and financial market developments.” This is reflected in its wider forecast range between 2.0% – 3.5% for
the year, which is within our target of 2.7% (2023: 2.5%).
Ringgit: While external factors have led to heightened volatility in both capital flows and exchange rates across
the region, the pressure was partially contained by coordinated initiatives between the government and BNM with
GLCs and GLICs. Additionally, the MPC highlighted that “BNM will continue to manage risks arising from
heightened financial market volatility”, reflecting its commitment to intervene in the market.
OPR outlook: status quo likely for the rest of the year barring unforeseen circumstances. MIDF said it believes BNM will maintain its policy rate at 3.00% for the rest of the year to support domestic growth while keeping inflation in check. This is because the upside risk on the inflation outlook remains tilted to the upside, particularly due to the potential impact of the targeted subsidy mechanism, which could increase price pressure if the government decides to float the fuel price at market rates. Additionally, the announcement of a wage hike for government servants in December, along with the new EPF’s Account 3 initiatives, is expected to support strong domestic demand in the coming months.
However, growth concerns persist as growth remains vulnerable to external risks, including heightened geopolitical tensions, China’s fragile recovery, and a slower technology upcycle. Additionally, a potentially slowdown in the US economy, due to prolonged high interest rates, could threaten the domestic growth outlook. With that said, MIDF said BNM may want to prioritise growth in line with its target of 4.0% – 5.0% (KIBB: 4.5% – 5.0%). The house expects BNM to maintain its neutral stance for an extended period to support sustainable growth while monitoring potential risks to inflation and growth.
