Bank Negara expected to maintain overnight policy rate

Bank Negara is expected to keep the overnight policy rate unchanged at three percent after cutting the rate by 25 basis points in May, says Standard Chartered Global Research.

The central bank is scheduled to announce its next monetary policy decision tomorrow.

Standard Chartered said the rate cut in May – the country's first since July 2016 – was intended to address some signs of tightening financial conditions, rather than any significant growth deterioration or fall in inflation.

“While downside risks to growth remain, we think the May cut was preemptive and expect the central bank to remain watchful," it said in a note today.

“We expect growth to remain above 4.5 percent year-on-year in 2019. 

"Core inflation (excluding the tax changes effect) was stable at 1.6 percent year-on-year in May."

Economists polled by Reuters last week agreed that Bank Negara would hold the overnight policy rate at three percent.

“The central bank will likely wait a little longer before pencilling in one more rate cut. 

"We expect Bank Negara to ease in the fourth quarter of 2019, when domestic demand will start slowing,” HSBC said in a research note on Friday.

Exports increased by 2.5 percent in May from a year earlier, slower than expected due to a decline in shipments of manufactured goods to China.

Annual inflation in May remained unchanged at 0.2 percent for the third consecutive month. - Mkini