Bank Negara Malaysia likely to keep policy rate unchanged amid market uncertainties

The Bank Negara Malaysia (BNM) is expected to hold its first monetary policy meeting of 2017 on Thursday, January 19. It is widely expected to maintain its overnight policy rate (OPR) at 3.00 percent and stay on hold for the near-term amid market uncertainties.

The central bank of Malaysia aimed at supporting the Malaysian Ringgit (MYR) despite the country’s genial inflation outlook. Malaysia’s December consumer inflation is expected to release on Wednesday and it is likely to remain nearly flat.

Last Friday, BNM Governor Datuk Muhammad Ibrahim pledged to continue monitoring the activities in the financial market and introduce appropriate measures except for capital controls and ringgit fixing to strengthen the policies that are already in place if deemed necessary, reported Scotiabank in its research note.

However, we believe the downward pressure on the MYR will persist and may escalate again in the months ahead. Investors still need to pay a premium to buy protection again upside risks in USD/MYR according to 25 delta risk reversal. In addition, the nation’s foreign reserves could be insufficient, they added.

Lastly, Scotiabank mentioned that the USD/MYR is expected to break above 4.50 and head for 4.60 if Trumpflation risks or the yuan depreciation pressure intensifies in the coming months, although bouncing oil prices may alleviate the downward pressure on the MYR to some extent.

Meanwhile, USD/MYR traded flat at 4.4680 by 05:30 GMT.