The research house said while the 3.25% OPR is currently seen as accommodative and supportive of economic activities, the monetary policy statement (MPS) sounded “dovish”.
This follows Bank Negara Malaysia’s (BNM) assessment that growth will moderate this year after expanding by about 5% in 2015 amid an increased downside risk.
“We noted that the latest MPS removed the reference to ‘4% to 5%’ growth for this year, and which was in the preceding MPS in November 2015, hinting uncertainty over growth outlook.
“BNM takes the view that the upward pressure on inflation will peak by the first quarter of 2016 (1Q16) and moderate thereafter,” it said in a note today.
The research house said further statutory reserve requirement (SRR) cuts cannot be ruled out.
It said a return to the record low of 1% during the 2009 recession in the aftermath of Global Financial Crisis will free up RM30 billion in liquidity.
This, incidentally, is equivalent to the drop in total deposits from its peak in April 2015 and November 2015 and have a more material impact on market interest rates.
The SRR ratio was unexpectedly cut to 3.5% from 4%, effective Feb 1, 2016.
It also said that the May 18-19 and July 12-13 MPC meetings will be closely monitored.
“By then, the leadership transition at BNM in terms of a new Governor is done. The 1Q16 gross domestic product (GDP) is out (by mid-May 2016) and BNM can see whether inflation is moderating post-1Q16 as expected.
“We also think that BNM will not relax the existing macro-prudential measures on bank lending to households in view of the still high household debt to GDP ratio of 89% as of end-2015,” it said.