KUALA LUMPUR, Dec 27 — Malaysia’s central bank will probably delay raising the Overnight Policy Rate (OPR) due to strong economic challenges next year, financial research firm Fitch Solutions predicts.
The Fitch Group unit said it expects Bank Negara Malaysia (BNM) to hold the OPR at 3.25 per cent in 2019.
“We believe that the central bank is unlikely to hike rates in 2019 as we expect economy growth to continue to slow. We are forecasting real Gross Domestic Product (GDP) to grow at a rate of 4.2 per cent in 2019, as we expect all segments of the economy except private consumption to face major headwinds.
“This will mark the third consecutive year of deceleration as we forecast real GDP growth to slow to 4.6 per cent in 2018, from 5.9 per cent in 2017,” it said in a statement today.
OPR is the interest rate at which a depository institution lends immediately available funds to another depository institution overnight.
Fitch Solutions said keeping the OPR at the current rate is to protect the domestic economy from external shocks, including the possibility of another flare-up in the United States-China trade war.
“In particular slowing inflation is likely to support real yield differentials against the United States, naturally putting a floor under our expected modest depreciation of Malaysian ringgit, the defence of which would have been the main reason for the central bank to consider a hike.
“We expect inflation to remain subdued in 2019, which would reduce pressure on BNM to hike rates to curb price pressures,” it said.
The research firm added that a lower inflation rate would help prevent a collapse in the ringgit.
It said its forecast is underpinned by assumptions of stability in the ruling Pakatan Harapan coalition.
It noted that a loss of public confidence could further dampen economic growth and investors’ confidence.
