Report: Bank Negara to keep interest rates unchanged

Bank Negara Malaysia is expected to keep the Overnight Policy Rate (OPR) at 3.25 per cent. — Picture by Yusof Mat Isa
Bank Negara Malaysia is expected to keep the Overnight Policy Rate (OPR) at 3.25 per cent. — Picture by Yusof Mat Isa

KUALA LUMPUR, Sept 5 — Bank Negara Malaysia is expected to keep the Overnight Policy Rate (OPR) at 3.25 per cent at today’s Monetary Policy Committee (MPC) meeting, according to Bloomberg.

It also said that low Inflation and a ringgit that has been relatively sheltered from the appreciation of the US dollar are factors that point to less pressure on the central bank to hike interest rates at this juncture.

All 17 economists surveyed by Bloomberg predict the benchmark rate will be left at 3.25 per cent.

Bloomberg said economists were more concerned on measures to be taken by Finance Minister Lim Guan Eng to reduce federal debt and liabilities that are in excess of RM1 trillion.

Lim is expected to roll out a new fiscal plan during the unveiling of the 2019 Budget on November 2.

Lim previously disclosed that RM33.8 billion in tax refunds were missing from the government’s accounts.

In addition, there is also a shortfall of tax revenues as the collection of the new Sales and Service Tax (SST) which was implemented on September 1 is expected to rake in RM21 billion annually compared to its predecessor, the Goods and Services Tax (GST) which brought in RM42 billion to government’s coffers.

These issues would mean that the government’s budget deficit target of 2.8 per cent for this year might not be attained.

Officials are counting on other revenue sources such as larger dividends from state companies, to make up for the shortfall.

The government is also cutting state spending by cancelling or deferring major projects, for example the Kuala Lumpur-Singapore high-speed rail and the East Coast Rail Link, which was backed by Chinese investors.

Bloomberg said, quoting Capital Economics Ltd, that the new sales and services tax is unlikely to lead to a sharp rebound in inflation as it applies to less than 40 per cent of products compared to the GST.

Another reason that the central bank will hold rates steady is that GDP growth for the second quarter of 2018 slowed to 4.5 per cent compared to 5.4 per cent in the previous quarter.

Bank Negara would not want to thwart further growth by hiking interest rates.

Malaysia has been somewhat sheltered by the currency rout of emerging markets when the ringgit declined some 2.3 per cent against the dollar year to date compared to Indonesia’s rupiah which has tumbled more than 9 per cent, while the Philippine peso has dropped 6.8 per cent in the same period.

The steady ringgit does not provide reason for the central bank to hike interest rates now.