With Malaysia's fourth quarter GDP growth having beaten the 4.5 per cent consensus estimate to come in at 4.7 per cent, economists do not expect the central bank to change its policy this year, despite expected low inflation. The next monetary policy meeting is on Mar 5, with any revisions in official growth forecasts to be announced in the central bank's annual report on Mar 27.
"Although there are growing calls for more policy rate cuts in the region, Bank Negara Malaysia has kept a neutral tone and cuts in the overnight policy rate (OPR) are only moderately priced in the interest rate swaps," said UOB Malaysia senior economist Julia Goh. She maintains her view for the OPR to stay on hold at 3.25 per cent in 2019.
Citi economists also consider rate cuts to be unlikely, saying: "With policymakers eschewing an activist approach in monetary policy and risk of household re-leveraging on housing measures in Budget ’19, low inflation alone is not yet sufficient to push the MPC (Monetary Policy Committee) to cut rates."
The December CPI was below expectations at 0.2 per cent year-on-year, with Citi expecting the official 2019 CPI forecast range of 2.5 per cent to 3.5 per cent -- announced in November -- to be revised downwards by as much as 1 percentage point.
One scenario where the OPR might be cut is a "full materialization of trade war risks" that pushes GDP growth to under 4 per cent, said the Citi economists, but added that there is uncertainty as to how pre-emptive the committee would be.
ING economist for Asia Prakash Sakpal believes the central bank "will assess economic risks as fairly balanced and will leave monetary policy on hold throughout the year", adding: "Absent a significant hit from the global trade war or a shock from commodity prices, we expect Malaysia’s GDP growth to settle in a 4-5% range on our forecasting horizon."