OPR Expected To Be Cut In 2017
The global research unit of Standard Chartered Bank revised its earlier forecast of the overnight policy rate (OPR) adjustment to the later part of the first quarter of 2017 (1Q17).
StanChart first predicted the Bank Negara Malaysia (BNM) to cut the OPR by 25-basis point at the final Monetary Policy Committee meeting for the year on Wednesday.
However, it later released a statement changing its earlier forecast.
“The Malaysian economy remains soft; however, we see room for BNM to keep the OPR unchanged at 3% on Nov 23,” it said.
Although the economy is weak, the research unit saw signs of stabilisation in Malaysia’s recent economic data.
“Gross domestic product (GDP) growth for 3Q16 surprised to the upside at 4.3% year-on-year (y-o-y), bringing the nine months ended September 2016 GDP growth to 4.15% year-on-year.
“This was within the government’s growth forecast of 4% to 4.5% for 2016, whereas first half of 2016 (1H16) growth of 4.05% was just above the low end of the range,” StanChart said in the statement.
It also state that the risks to the Malaysian economy remain to the downside.
“Private consumption may have been boosted by measures such as voluntary cuts to the employee pension fund and minimum wage hikes, [while] 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,” it said.
Investment sentiment is also expected to continue to be lacklustre, as suggested by the loan performance.
“Loan growth slowed to 4.2% y-o-y in September. Outstanding loans may have stabilised month-on-month, but loans disbursed continued to contract for the fourth consecutive month in September,” it said.
The country’s external demand remains weak, with merchandise export volumes falling 1.1% y-o-y in 3Q16, from 6.1% y-o-y growth in 1H16.
Based on GDP data, exports of goods and services fell 1.3% y-o-y in 3Q16, deteriorating from the 0.2% decline in 1H16. However, the GDP growth was mitigated as imports declined more than exports in 3Q.
“Although BNM recognises the challenging global economic conditions, we believe 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,” it said.
The statement also noted that StanChart will be closely monitoring the impact of the related uncertainty of Donald Trump’s victory in the recent US presidential election on Asian financial markets.