BNM Watch: No Change Expected

Nobody is expecting a change in the Overnight Policy Rate today, and its likely to remain at 3.00%. With the somewhat encouraging trade numbers, solid credit growth, full employment (and then some), and effectively full capacity utilisation in the manufacturing sector, there’s simply no cause to pull the trigger. Nor do I think there will be, barring a European catastrophe.

Some of the other regional central banks have already made a move, notably China, but others like Korea and Taiwan have not despite posting far lower growth and export numbers than Malaysia. My personal inclination is for a tightening of monetary conditions – I think the economy is perhaps doing a little too well under the circumstances.

There’s room to cut with inflation falling to 1.7% in May – put another way, monetary conditions are effectively tightening already, although the depreciation of the Ringgit in recent months offsets this somewhat.

Another consideration is that a 25bp cut effectively signals a path towards loosening rather than an almost-never-done-by-central-banks one-off change, and I simply don’t see BNM thinking things are that far gone yet.