Flash Notes

类型：投资策略机构：大华银行有限公司研究员：大华银行研究所日期：2017-05-17

Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) at 3.00%. The decision came widely expected.

    It marks the fifth meeting that OPR is kept on hold after 25bps cut in July last year. The next monetary policy meetingwill be on 12-13 July 2017.

    Looking up. BNM sounded optimism on the global outlook as well as domestic growth momentum. BNM mentioned thatGDP growth is expected to strengthen in the first quarter of 2017, and to be sustained for the rest of the year. Release of1Q 2017 GDP and current account is on 19 May.

    Headline inflation is expected to moderate in 2H 2017. Cost-push inflation is not expected to have a significantimpact on the broader price trends given stable domestic demand.

    BNM signals neutral bias. BNM signaled a neutral monetary stance. Despite mounting expectations for Fed to raiserates in the near future, we do not expect BNM to follow in tandem. We think growth and inflation risks are manageablewhile Ringgit has stabilised. On balance, we expect BNM to keep the OPR unchanged this year.

    USD/MYR hovers at 4.34 and a break above 4.3560 would indicate that the USD has moved into a neutralconsolidation phase, likely between 4.3250 and 4.3700.

    Global economy en-route for growth. BNM sounded that global economy continues to expand with industrial activity andglobal trade having picked up. BNM expects the global economy to improve further with a revival in investments in advancedeconomies and sustained domestic activity alongside stronger exports in the emerging economies. BNM continued to cautionon threats from protectionism, geopolitical developments, and commodity price volatility which could reignite financial volatility.

    Malaysia’s growth expected to strengthen further. BNM is optimistic that growth momentum should strengthen in 1Q 2017and to be sustained for the rest of the year. Growth will be driven by domestic demand and continued wage and employmentgrowth, as well as implementation of investment projects. Exports are expected to contribute positively to overall growth.

    We expect real GDP growth of 5.0% in 1Q 2017. We concur with BNM that growth momentum should tick higher. We havetuned up our real GDP estimates to 5.0% y/y for 1Q 2017 (vs. 4.5% in 4Q 2016) following higher growth in manufacturingoutput (1Q17: 5.7%; 4Q16: 4.9%), services activity (1Q17: 6.2%; 4Q16: 5.9%), construction work done (1Q17: 9.7%; 4Q16:8.1%), and crude palm oil production (1Q17: 17.9%; 4Q16: -7.2%) which should translate to a turnaround in agricultureproduction from -2.4% in 4Q 2016. This should help offset slower mining output (1Q17: 1.2%; 4Q16: 4.7%). We maintain ourfull year GDP growth outlook of 4.5% for 2017 and 4.7% for 2018.

    Transient spike in inflation. BNM said the increase in inflation (to 4.3% in 1Q 2017) reflects mainly the pass-through impactof higher global oil prices and temporary supply disruptions that led to higher food prices. BNM expects the higher headlineinflation to moderate in the second half of the year though the trend will be dependent on global oil prices which remain highlyuncertain. Underlying inflation, as measured by core inflation, is expected to increase only modestly. We expect headlineinflation to have peaked in March and average 3.6% this year.

    Ringgit stabilises. BNM reaffirms that the banking system liquidity remains sufficient. Financial institutions continue tooperate with strong capital and liquidity buffers and financing of private sector activity grows consistently with the pace of theeconomy. As such, BNM kept the statutory reserve requirement (SRR) unchanged at 3.5%. Malaysia’s foreign reservesedged up to US$96.1bn as at end-April. The level of reserves is sufficient to cover 7.9 months of retained imports and 1.1times of short-term external debt. Foreigners turned net buyers of domestic bonds for the first time in April (+MYR6.8bn inApril) following five months of selling since November 2016 (-MYR62.7bn between Nov 16 to Mar 17) signaling a reversal insentiment following recent BNM liberalisation of bond and FX measures and more supportive external market conditions.