Any interest rate easing by Bank Negara likely in mid-2020: Economists

KUALA LUMPUR: Bank Negara Malaysia has decided that there is enough juice to keep its key interest rate at three per cent at its last monetary policy committee (MPC) meeting for the year on Tuesday.

While its next MPC meeting is due on January 21-22 next year, some economists feel that any easing of Bank Negara’s overnight policyrate (OPR) may only happen in the middle of 2020.

Bank Negara’s rate path ahead, like a lot of others, depends on the US and China more than anything else, OCBC Bank economist Wellian Wiranto said.

“To us, the call on whether Bank Negara will cut anytime soon or not, including in its next MPC announcement on January 22 next year has ultimately become a call on whether there is going to be a Phase 1 deal between the US and China in the coming weeks,” Wiranto said in a report.

“This is especially so given that Bank Negara’s statement suggests that, even as it is still comforted by domestic growth drivers, it remains cautious of how global development has affected not just exports but also investment activities,” he added.

Wiranto said with its baseline expectation that there was going to be a deal, OCBC Bank would have to push back its call on any OPR rate cut to mid-2020.

“If, for whatever reason, the deal falls through and trade disputes escalate once again, then expect Bank Negara to be one of the first central banks in the region to react quickly to it with easing,” he added.

United Overseas Bank (Malaysia) Bhd senior economist Julia Goh said the central bank’s decision to maintain the OPR came in line with its estimate and market consensus.

Sixteen out of 25 analysts polled by Bloomberg had expexted a pause while the remaining nine analysts projected a 25 basis point cut.

“Despite rate cuts by US Fed and regional central banks including Indonesia, South Korea and the Philippines, Bank Negara has kept a cautious ‘wait-and-see’ stance since the rate cut in May.

“In today’s monetary policy statement, Bank Negara continued to maintain a neutral tone and cautioned on downside risks to both global and domestic growth going into 2020,” Goh said in her report.

With Malaysian exports worsening at a faster-than-expected pace of late and business confidence remaining weak, UOB Malaysia has stuck to its view of another “pre-emptive” 25bps cut in OPR to 2.75 per cent by June next year to further safeguard growth.

This is in addition to the mildly expansionary budget for 2020, benign inflation expectations and lagged effect of the previous rate cut in May that are currently supportive of domestic growth moving into 2020.

“Although the recent progress between the US and China to sign a Phase 1 trade deal has helped allay concerns of further tariffs and escalation of tensions that would threaten near-term growth, there is still a long way towards full resolution,” Goh said.

Source: NST