Yesterday’s MPC statement came in more hawkish than expected (excerpt):
At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.25 percent….
…Volatility in the international financial markets has increased amid shifts in global liquidity and heightened uncertainty particularly with regard to global growth prospects and the decline in commodity prices….
…For Malaysia, economic activity continues to be supported by growth in domestic demand amid a moderation in exports in the fourth quarter of 2014. Going forward, domestic demand will remain as the key driver of growth….While export growth will be affected by lower commodity prices, the performance of manufactured exports is expected to improve. The prospects are therefore for the Malaysian economy to still remain on a steady growth path…With the implementation of the managed float pricing mechanism for fuel, the outlook for headline inflation would be subjected to the volatility of oil prices. Nevertheless, the expectation is for underlying inflation to remain relatively stable, amid the more moderate demand conditions.
At the current level, the stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions…The MPC will also continue to monitor the risks of destabilising financial imbalances. This is to ensure that the monetary policy stance is consistent with the sustainability of the growth prospects of the Malaysian economy.
The OPR staying where it is at 3.25% was widely expected…the comment about financial imbalances was not. There was speculation in the market last week that BNM would follow other central banks around the globe in easing policy. The expressed concern over financial imbalances means that, unless growth really surprises on the downside, the likelihood of that happening just went to near zero.