Unlikely for BNM to cut OPR now, says Euler Hermes economist

KUALA LUMPUR (May 8): Bank Negara Malaysia (BNM) is unlikely to cut its overnight policy rate (OPR) now given the high inflation in the country, according to Euler Hermes-Allianz Research's senior economist for Asia, Mahamoud Islam.

"I don't think the rate cut will happen now because you have higher inflation, so the objective is not to cut rates because when you cut rates you create more bias [towards] inflation, which is not positive.

"Most of the time when you have higher inflation, you raise interest rates, so the likelihood [seems to lean towards] raising interest rates than to cut it," he said at a press conference today after his presentation on Malaysia's outlook, growth prospects and game changers beyond 2017.

Malaysia's inflation came in at 5.1% higher in March 2017, compared to a year ago.

Mahamoud said he expects the central bank to stand pat on the OPR this year.

"I think the interest will be stable to support the economy. I think it's not just about cutting rates [to spur growth]. With the [weak] ringgit, this presents investment opportunities into Malaysia," he said.

When asked if China's capital control measures would hinder investments into Malaysia, Mahamoud said "No" as it would not have an impact on China's One Belt One Road initiative.

"The capital control measures are to avoid a strong increase in speculative outflow from China. This does not impact the One Belt One Road strategy, which is designed for infrastructure investment," he said. — theedgemarkets.com

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