Standard Chartered Research joins other research houses in forecast
PETALING JAYA: Standard Chartered Research is the latest among research houses to say that Bank Negara is likely to keep the benchmark overnight policy rate (OPR) unchanged at 3% when the central bank’s monetary policy committee meets next week.
The bank’s Asean research head Edward Lee said in a report that Bank Negara would maintain the OPR on resilient economic growth.
“We now expect Bank Negara to cut rates only in the late first quarter of 2017, versus our previous expectation of a 25-basis-point cut at the November meeting,” he said.
Most economists now expect the central bank to cut the OPR only in the first-half of next year. The ringgit’s weakness brought on by the uncertainty over US economic and trade policies will also influence Bank Negara’s decision. Policymakers will also have to take into consideration a US rate hike in mid-December, which could mean larger fund outflow from emerging markets like Malaysia.”
Lee said recent data showed that the Malaysian economy was stabilising despite some weakness.
“Third-quarter gross domestic product (GDP) growth surprised to the upside, at 4.3% year-on-year (y-o-y), bringing nine-month 2016 GDP growth to 4.15% y-o-y.
“This was within the Government’s growth forecast of 4.0%-4.5% for 2016, whereas the first-half growth of 4.05% was just above the low-end of the range,” he said.
“Sequential growth was also strong, at 1.5% quarter-on-quarter (seasonally adjusted), the fastest in seven quarters. Private consumption held up better than expected, while private investment offset the contraction in public investment,” Lee added.
He said that by sector, GDP data showed resilience.
“The services sector picked up pace versus the second quarter, growing 6.1% y-o-y. Services segments such as wholesale and retail trade, finance and insurance, and real estate and business services showed faster growth,” Lee said.
Bank Negara said in the latest quarterly economic briefing that the domestic economy remains resilient in spite of downside risks posed by external uncertainties.
It expects private consumption to be supported by measures to increase disposable income, and noted that investment activity remains anchored by ongoing infrastructure projects.
“This statement is similar to Bank Negara’s views published on Aug 12, following which it kept policy rates on hold in September. We believe the central bank continues to regard market communication as important, and it appears to be conveying a neutral monetary policy stance,” Lee noted, adding that the risks remain to the downside.
He said private consumption may have been boosted by measures such as voluntary cuts to the employee pension fund and minimum wage hikes, and one-off payouts to civil servants may have helped bolster spending.
“However, labour metrics continue to soften. In September, the seasonally adjusted unemployment rate rose to 3.5% and employment growth remained lacklustre at 0.7% y-o-y. High household leverage may also encourage people to save, as labour conditions deteriorate further,” Lee said.
He said that while Bank Negara recognises the challenging global economic conditions, it believes that further deterioration will require a monetary policy adjustment.
“Potential trade protectionist policies from the US and a hard impact on euro-area growth from Brexit are key risks that need monitoring.
“China remains the elephant in the room, but growth risks in the country appear stable for now,” Lee said.