Hawkish tone by BNM could indicate possible rate hike

KUCHING: Bank Negara Malaysia (BNM) has retained the overnight policy rate (OPR) unchanged at three per cent but it also cited the need to review the current accommodative policy on the back of the present growth momentum.

With that, analysts believe that this hawkish tone by BNM could signal a possible rate hike in 2018.

The research arm of AmInvestment Bank Bhd (AmInvestment) pointed out that BNM has also raised its caution on inflation, which for 2017, is likely to be at the higher end of its forecast range.

In a statement following the conclusion of its recent Monetary Policy Committee (MPC) meeting, BNM said given the strength of the global and domestic macroeconomic conditions, the MPC might consider reviewing the current degree of monetary accommodation to ensure sustainability of Malaysia’s economic growth prospects.

“The hawkish tone by BNM supports our view for a 25 to 50 basis point rate hike in 2018. Besides, we find BNM’s tone somewhat follows that of the Bank of Korea (BoK) and the central bank of Philippines which also debated the degree of accommodation needed,” the research team opined.

Nevertheless, it pointed out that although the industrial production grew 4.7 per cent year-on-year (y-o-y) in September compared to 6.8 per cent y-o-y in August following a 5.7 per cent y-o-y growth in manufacturing, 2.2 per cent y-o-y for electricity and 2.1 per cent y-o-y for mining, it projected the GDP to continue to exhibit strong growth around 5.7 per cent y-o-y for 2017.

“Hence our US dollar to ringgit outlook for 2017 is 4.31 to 33 for the full-year average with our end period at 4.15 to 18 while intraday trade is at 4.10 to 4.12.

“We expect the US dollar to ringgit to strengthen to 4.205 for 2018’s full- year average with our end period at 3.950,” it said.

AmInvestment said, the stronger ringgit outlook against the US dollar is supported by improving sentiments with BNM external reserves improving to US$101.4 billion at end-October, net foreign inflow into equities market at RM9.8 billion at end-October, foreign holdings in MGS at 42.7 per cent and a more stable foreign currency deposits at around seven per cent.

All in, the research team project Malaysia’s GDP to be at 5.7 per cent for 2017.

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