Normalisation has started
- Bank Negara has raised its Overnight Policy Rate (OPR) by 25bps to 3.25%
- A robust economic performance prompted the central bank to normalise its monetary policy
- We expect another 25bps hike in 3Q18, which will bring the OPR to 3.50%
Optimism with the domestic economy is also shown with the authorities expecting the current strong growth momentum to continue in 2018, supported by robust domestic demand. Favourable labour market conditions are expected to lift private consumption while investment growth will remain strong, driven by a healthy pipeline of infrastructure projects and increased capital spending.
However, the central bank did acknowledge that inflation will likely ease in the near term. It noted that the strong Malaysian ringgit, which has been the region’s top performer so far this year, will help to mitigate imported inflation.
We had originally expected the rate hike to come after the elections. The decision to move earlier at this meeting is understandable given the favourable global and domestic economic environment. The rate hike essentially reversed its previous rate cut in July 2016. Effectively, Malaysia has taken the lead in normalising monetary policy in Southeast Asia.
Looking ahead, we expect the central bank to hold back its next policy move till after the election. Specifically, we expect BN to raise the OPR by another 25bps to 3.50% in Q3. The risk remains for inflation to move up again in the latter half of the year. By then, it would also be timely to realign rates to higher US and regional rates. In between, the risk of a hike in the Statutory Reserve Requirement ratio should not be discounted as well.
To read the full report, click here to Download the PDF.
Economist - Singapore, Malaysia, & Vietnam
The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.
The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.
The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.
DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.
To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.
The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.