This article first appeared in The Edge Financial Daily on August 22, 2017 - August 28, 2017

KUALA LUMPUR: Bank Negara Malaysia is expected to maintain the overnight policy rate (OPR) at 3% until year end, following the higher-than-expected 5.8% year-on-year growth recorded in the second quarter of this year.

This is the forecast of both CIMB Investment Bank Bhd and Public Investment Bank Bhd in their notes to clients yesterday.

“With the economy exhibiting resilience, we think monetary policy will remain on an extended pause, and hence reiterate an end-2017 overnight policy rate forecast of 3%. [However], Malaysia’s external position remains exposed to the volatility of portfolio flows, which are susceptible to turning on a dime when market sentiment weakens,” CIMB said.

It noted that the second-quarter growth beat its forecast of 5.7%, and the consensus’ forecast of 5.4%.

Meanwhile, Public Investment wrote that it did not foresee risks to growth in the country’s economy at this juncture.

“Additionally, the pressure on inflation is likely to be transitory in nature. Given that, we don’t foresee the need for [the] OPR to be adjusted either way, as it is seen as accommodative and conducive for the economy,” Public Investment said.

“As long as US interest rate adjustments remain at a measured pace, we foresee Malaysia’s ability to absorb and adjust to that,” said Public Investment, adding that hasty adjustments to the US federal funds rate is unlikely at this juncture given the tepid inflationary trends to date.

It also noted that 2017 growth was expected to benefit from the low base in 2016.

Additionally, the re-acceleration of gross exports would give the nation an added lift, pushing  for steadier headline growth this year, the research house added.

It is expecting headline inflation to be higher for the year — at 4% year-to-date, while last year it was 2.1%, induced by higher crude oil prices.

“As headline inflation is likely to be cost-driven, we don’t foresee the probability of central bank intervening to clamp prices. In any case, we expect core inflation to remain stable and will leave our expectations unchanged for now,” said Public Investment.