Malaysia central bank likely to stand pat tomorrow

The Malaysian central bank is likely to keep its overnight policy rate unchanged at 3.25% tomorrow as it believes that the economy continues to be on track to grow 4%-4.5% this year, stated Scotiabank in a research report. Moreover, the household debt-to-GDP ratio rose to 89% at the end of Q1 2016. This might restrict the room for additional easing at present.

The central bank also expected to keep the Statutory Reserve Requirement (SRR) ratio unchanged as onshore liquidity conditions recovered after the central bank lowered SRR by 50bp earlier in 2016, added Scotiabank. The central bank continues to keep its monetary policy stance accommodative and supportive of economic activity, stated BNM.

Meanwhile, the Malaysian ringgit is likely to remain vulnerable to external shocks such as tightening of policy by the US Fed, prices of crude oil, yuan exchange rate and Chinese economic growth in the months to come, noted Scotiabank in a research report. The Chinese economy is expected to stabilize in the following two to three month. Therefore the MYR is expected to be majorly driven by the US Fed’s hiking cycle plan and crude prices irregularly.

“We think the MYR could decline modestly versus the USD when approaching the Fed’s June FOMC meeting and expect USD/MYR to reach 4.20 by the end of June 2016”, said Scotiabank.

At the present stage, the ringgit is expected to decline sharply as the US Fed will not risk tightening policy too much and too rapidly.