Bank Negara expected to hold benchmark interest rate

KUALA LUMPUR: Bank Negara Malaysia (BNM) is expected to keep its benchmark rate steady tomorrow as policymakers work to stabilise a fragile ringgit and support an economy that is just starting to pull ahead after well over a year of slowing growth.
All 11 economists polled by Reuters forecast Bank Negara will hold its Overnight Policy Rate (OPR) at 3.00%, as a cut to follow its July easing would expose the ringgit to more pressure.
HSBC analysts said in a research note on Jan 13 the weak ringgit had tied the central bank’s hands, even if an “accommodative” monetary policy could help bolster the economy.
“But the likelihood of the OPR being kept on hold reopens the possibility of further cuts in the statutory reserve ratio (SRR) in the coming quarters, particularly if interbank rates start to rise again,” HSBC said.
BNM announced a surprise 50-basis point cut to its SRR in January last year, bringing it down to 3.5% from 4.0% to boost liquidity in the banking system.
The central bank later cut its key rate to 3.00% in July – the first in seven years and less than two weeks after Britain's Brexit vote – in what central bank governor Datuk Muhammad Ibrahim described as a "pre-emptive move".
The economy ended five straight quarters of slowing growth by expanding 4.3% in the September quarter.
BNM was widely expected to deliver a second interest rate cut before the end of last year, but the sell-off in the ringgit appeared to have put paid to such a move.
In November, the central bank stepped in to discourage ringgit trade in the non-deliverable forwards market, and later introduced measures to boost onshore ringgit trade.
Economists were split on whether BNM will keep the OPR steady throughout 2017, with some predicting a cut later in the year.
BNM "missed the best window" to cut its key rate further in
November, said Irvin Seah, an economist at DBS. "Now with inflation going up and with the Fed expected to tighten policy, it's tough to justify a cut."
Nomura, however, thinks the central bank will announce a rate cut later this year.
"(Malaysia's) growth and inflation dynamics will be the main issues. The Fed's decision may affect the timing, but it won't change the policy direction," said Brian Tan, a Nomura economist.
The government expects growth to be at 4.0-5.0% this year, up from its forecast of 4.0-4.5% for 2016, on continued support from domestic demand and a recovery in global commodity prices. – Reuters