Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Economic Research, Strategic Management Friday, March 3 2017 / 4 Jamadilakhir 1438H Dr. Mohd Afzanizam Abdul Rashid | Chief Economist | 03-2088 8075 | [email protected] OPR remain unchanged at 3.00% Facts The BNM’s Monetary Policy Committee (MPC) meeting yesterday decided to keep the Overnight Policy Rate (OPR) unchanged at 3.00%. The accompanying statement indicated that the committee members are of the view that inflation rate will continue to remain high at least in the 1H2017 before moderating in the subsequent period. However, the BNM put a disclaimer that such view is heavily dependent upon the outlook of oil prices which is highly uncertain. The current OPR level is deemed to be accommodative and supportive to growth. The next meeting will be held on 12 May. Chart 1: Overnight Policy Rate (OPR) % 3.50 3.30 3.10 3.00 2.90 2.70 2.50 2.30 2.10 1.90 1.70 1.50 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Source: Bloomberg Our view We have recently revised our 2017 inflation forecast from 2.1% to 3.4%. This was on account of higher food and fuel prices. The difference between the 10- and 3-year MGS yields showed that such spread was narrowing to 76 basis points as of yesterday compared to 86 basis points in early February. This suggests that the yield curve is flattening owing to the sharp rise in the 3year MGS yields. What it means is that the yield curve is implying that the BNM may not incline to cut rates as short dated securities typically reflect central bank action. We believe the BNM has less flexibility to cut the OPR in view of higher inflation rate. Also there is a need to ensure real rates of return to remain positive in order to encourage savings. As such, we are maintaining our call that the OPR will remain at 3.00% for the rest of the year. For Internal Circulation Page 1 Economic Research, Strategic Management Friday, March 3 2017 / 4 Jamadilakhir 1438H Chart 2: Difference between 10- and 3-year MGS yields (yield curve) 1.20 1.00 0.80 0.60 0.40 0.20 - Source: Bloomberg For Internal Circulation Page 2 Economic Research, Strategic Management Friday, March 3 2017 / 4 Jamadilakhir 1438H Monetary Policy Statement At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent. Economic activity in the advanced and emerging economies has continued to improve. Global trade is also showing a recovery. In this environment, the Asian economies are benefiting from stronger external demand amid sustained domestic activity. For 2017, the global economy is projected to expand at a slightly faster pace. Nevertheless, there remain risks to global growth arising from threats such as protectionism, geopolitical developments, heightened volatility of financial markets and negative developments in the prices of key commodities. Despite the challenging global and domestic environment, the Malaysian economy expanded by 4.2% in 2016. Growth was underpinned by private sector activity, with additional support from the turnaround in net exports. The growth momentum is expected to be sustained in 2017. With the growth of domestic demand being sustained, the more positive contribution from the external sector will lead to a better performance of the Malaysian economy. Headline inflation is projected to be higher in 2017, reflecting primarily the pass-through impact of the increase in global oil prices on domestic retail fuel prices. Headline inflation would remain relatively high in the first half of the year before moderating thereafter. However, the projected trajectory of domestic headline inflation will be dependent on the future trend in global oil prices which remains highly uncertain. The cost-driven inflation is not expected to have a significant impact on the broader price trends given the stable domestic demand conditions. Core inflation is expected to increase modestly.The ringgit, along with other emerging market currencies, has continued to stabilise. The implementation of financial market development measures has had a positive impact on the domestic financial markets. Banking system liquidity remains sufficient. Financial institutions continue to operate with strong capital and liquidity buffers and the growth of financing to the private sector is consistent with the pace of economic activity.At the current level of the OPR, the stance of monetary policy is accommodative and supportive of economic activity. The MPC will continue to assess the balance of risks surrounding the outlook for domestic growth and inflation. Produced and issued by BANK ISLAM MALAYSIA BERHAD (Bank Islam) for private circulation only or for distribution under circumstances permitted by applicable laws. All information, opinions and estimates contained herein have been compiled or arrived at based on sources and assumptions believed to be reliable and in good faith at the time of issue of this document. This document is for information purposes only and has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. No representation or warranty, expressed or implied is made as to its adequacy, accuracy, completeness or correctness. All opinions and the content of this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of Bank Islam as a result of using different assumptions and criteria. No part of this document may be used, reproduced, distributed or published in any form or for any purpose without Bank Islam’s prior written permission For Internal Circulation Page 3