BNM likely to hold OPR steady at 3.25 pct in 2019

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Analysts have maintained their view that BNM could hold the OPR steady at 3.25 per cent in 2019, on the back of growth moderation and inflation remaining subdued. – AFP photo

KUCHING: Analysts have maintained their view that Bank Negara Malaysia (BNM) will most likely hold the overnight policy rate (OPR) steady at 3.25 per cent in 2019, on the back of growth moderation and inflation remaining subdued.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a BNM Forex Reserves report, despite ample foreign reserves, uncertainties arising from external factors continue to pose risk to domestic financial market and economic growth.

“On the trade war front, tensions persist, though we remain cautiously optimistic following recent extension of the US-China trade negotiation deadline beyond the initial date of March 1,” Kenanga Research said.

“Slowdown in key export markets, evidenced by dwindling high-frequency indicators, including in China, the US and eurozone, in spite of aggressive fiscal stimulus, may pass through as a harm to Malaysia’s domestic activity.”

The research arm also noted that as the US Federal Reserve and the European Central Bank adopt a more dovish stance this year, with larger monetary injections and fewer or no rate hike expected, outflow of hot money likely to wither, albeit still persisting amidst prolonged uncertainty.

“We maintain our view that BNM will hold the OPR steady at 3.25 per cent in 2019 as domestic indicators are pointing towards growth moderation and inflation is expected to remain subdued.”

However, Kenanga Research expected BNM would gradually turn dovish and may not hesitate to cut interest rates should there be signs that external factors are increasingly threatening domestic growth.

“On the ringgit outlook, though its pick-up in the recent months may have legs, we still maintain our US dollar-ringgit year-end forecast at 4.10 on the back of softer economic condition and the natural tendency for global capital to flee to safe haven assets.”