BNM Watch: OPR On Hold

It was a coin toss and tails it is (excerpt):

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….

…For Malaysia, economic activity has been supported by the continued growth in domestic demand and exports…While private investment activity is projected to remain robust, private consumption is expected to moderate…The prospects are for the Malaysian economy to remain on a steady growth path.

…Inflation is expected to remain relatively stable for the remainder of the year. Going into next year, inflation is projected to edge higher and is expected to be above its long-term average due to domestic cost factors….

The current stance of monetary policy remains supportive of growth…Further adjustment to the degree of monetary accommodation may be taken depending on how new information will affect the assessment on the balance of risks….

It looks like the MPC are erring on the side of growth. In hindsight, that’s predictable as BNM has always had a bias towards growth (and I’m kicking myself for not taking that into account).

The important points here I think are the ones highlighted:

1. For inflation to be relatively stable could be read in two ways. You could assume subsidy rationalisation will offset the base effect from next year (a year-on-year growth perspective). Or, you can take that as a signal that there won’t be subsidy rationalisation, and there won’t be any corresponding price jumps until the GST comes in next April (a month-on-month growth perspective). Based on my thoughts on this yesterday, I think the latter explanation applies.
2. The line about “new information” suggests any further OPR moves will be data dependent. That means money supply, credit, exports and production data for August and September will provide significant clues to which way the MPC will lean at the last meeting for the year in November.