More or less as expected by just about everyone, yesterday’s MPC meeting has the OPR still on hold at 3.25% (excerpt):
At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent.
The global economy continues to expand at a moderate pace…Looking ahead, while the overall global growth momentum is expected to improve, the growth forecast has been revised downwards due to weakening economic activity in a number of major economies. Consequently, the downside risks to global growth have increased. Volatility in the international financial markets has also risen.
For Malaysia, while domestic demand has continued to support growth, exports have shown signs of moderation. Going forward, domestic demand will still remain the key driver of growth…While the moderating trends will affect the overall growth prospect, the Malaysian economy is still projected to remain on a steady growth path.
Inflation is projected to trend higher for the remainder of the year and will continue to be above its long-term average next year due to domestic cost factors….
I didn’t agree with the original decision to raise the OPR earlier this year…but once that was done, I would’ve preferred to have seen interest rate normalisation carried through. There’s a potential credibility issue with just raising interest rates once – you might be seen as being to dependent on incoming data, as opposed to seeing broader trends in the economy and in trade.
But what’s done is done, and for now, it looks as if BNM will keep the monetary policy stance on hold for at least the next 2-3 sittings. The key here will be the behaviour of consumers and the extent of the recovery in trade.
Will consumption be brought forward before GST rolls out in April (I think the effect will be at best mild)? Will wage growth keep up with the changes in prices (not likely for the next six months unless there’s a revision in the minimum wage)? Will households resort to borrowing to maintain their living standards (the credit taps have been shut off)? Will Europe (actually the Germans) do the right thing and let the ECB do quantitative easing (not hardly)? Since the answer to all these questions is at best a maybe, there’s still no compelling reason to raise interest rates any time soon.