KUALA LUMPUR – HSBC Global Research expects Bank Negara Malaysia (BNM) to cut the overnight policy rate (OPR) by another 25 basis points (bps) to 2.75 per cent at its last Monetary Policy Committee meeting of the year on Nov 23, 2016.
Its Economist, Lim Su Sian, said with activity continuing to slow and loan growth at multi-year lows, there was a pressing need for BNM to deliver meaningful policy accommodation in this easing cycle.
“BNM has space for one more 25bp rate cut this year, but the scope for easing beyond that appears limited, particularly given our expectation that the US Federal Reserve (Fed) will raise the Fed funds target rate in mid-2017,” she said in the HSBC Global Research Report on the Asian Economics.
She said capital outflow risks had also become all the more pertinent because the current account surplus has narrowed much more significantly than HSBC’s expectation so far this year, coming to just 1.2 per cent of gross domestic product (GDP) in the first half of 2016.
“We have, therefore, materially downgraded our 2016 and 2017 current account forecasts to 1.2 per cent and 1.5 per cent of GDP from earlier estimates of 2.9 per cent and 2.8 per cent, respectively,” she said.
Meanwhile, Lim said, the government would face similar fiscal constraints in 2017, with the budget to be tabled on Oct 21, 2016 likely to contain more or less the same limited measures for low- and middle-income earners as in the 2016 budget.
However, Malaysia’s economy has not collapsed, but the activity continued to weaken, given limited policy options to boost growth, she said.
“However, we maintain our 2016 and 2017 growth forecasts at four per cent and 3.8 per cent, respectively and we forecast 2018 GDP to grow at four per cent,” Lim said.
On the Asian economic outlook this year, the report said, growth was still stable, perhaps not quite at the stellar speed the region has become accustomed to over the decades, but remarkably resilient all considered.
It said a determined stimulus in China, lifting property and infrastructure, has helped to stabilise output across much of the region.
“Plus, record-low interest rates and extra fiscal outlays at the margin have helped as well,” it said.
The report said Vietnam has bounced back from a drought-induced slowdown over the first half of the year.
“Singapore, meanwhile, is riding out the weakness in external demand, patiently waiting for a global upswing,” it said.