KUCHING: The Overnight Policy Rate (OPR) is likely to maintain at three per cent for 2017 amidst strong headline inflation and solid external trade performance.
According to the team over at MIDF Amanah Investment Bank Bhd (MIDF Research), fundamentally, global economic conditions have improved compared to a year ago given the arising trends observed in Malaysia’s and other economies’ external trade performance.
“Despite rise in headline inflation, we are in the opinion that Bank Negara Malaysia (BNM) would not conduct a rate hike unless core inflation breached above 3.0 per cent in any quarter in tandem with Gross Domestic Product (GDP) growing above 5.5 per cent,” said the research arm in a recently published economic review.
In March, our headline inflation was recorded at 5.1 per cent, the highest it has been in eight years since the peak of 5.7 per cent in November 2008.
MIDF Research explained that the surge in headline inflation was contributed by elevated pump prices as transport prices surged by 23 per cent year over year (y-o-y) in March while fuels and lubricant items were up by 40 per cent y-o-y.
“We note the lower base accentuated the inflation rate as on average, consumer items price declined on a month on month (m-o-m) basis,” added the research arm.
In tandem with the rise in inflation, external trade performance saw solid performance while being backed by strong manufacturing activity and imports of capital goods.
Manufacturing production expanded by 6.5 per cent in February, followed by electricity and mining at 1.5 and 0.4 per cent respectively.
The Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI) in March was recorded at 50.7 – the first time in two years since the figure was recorded above the 50.0 threshold.
“With commendable performance in IPI, we believe 2017 GDP growth is on course to achieve 4.9 per cent this year.”