KUALA LUMPUR (May 2): Bank Negara Malaysia (BNM) is expected to keep the overnight policy rate at 3.25%, at its upcoming monetary policy committe (MPC) meeting on a fairly weak factory-gate and consumer inflation data, said AmBank Research.
In a report today, AmBank group chief economist and head of research Dr Anthony Dass said that factory-gate inflation has remained in the negative growth trajectory for the third month, weighed down by the stronger ringgit (MYR) against the US dollar (USD), firm commodity prices, rising borrowing costs and high base.
“We noticed a slower drop in factory-gate inflation from components like crude materials,” he said.
Dass added that the factory-gate inflation fell albeit at a slower pace by - 2.2% year-on-year (y-o-y) in March, from -3.4% y-o-y in February.
“We noticed a slower drop in factory-gate inflation from components like crude materials. It fell -0.7% y/y in March from - 5.8%y/y in February,” he said.
Likewise, Dass added that the intermediate materials prices, another components of factory-gate inflation, dropped -2.8% y-o-y in March from -2.9% y-o-y in February, while the producer price for finished goods declined -2.2% y-o-y in March from -2.1% y-o-y in February.
As for producer prices, Dass expects it to stay weak in the coming months weighed by the stronger USD/MYR and high base effect.
“However, the drop in factory-gate prices will be somewhat muted with a firmer commodity prices from the tit-for-tat tariffs impact between China and the United States that have fuelled worries about the inflation outlook,” he noted.
The upcoming MPC meeting, which is the third meeting this year, will be held on next Thursday (May 10).
“With the factory-gate inflation as well as consumer inflation being fairly weak at the moment, we are of the view that BNM will maintain its current 3.25% OPR in the coming monetary policy meeting, which is scheduled on May 10 after having raised the policy rate by 25 basis points in January 2018,” Dass concluded. — theedgemarkets.com