KUALA LUMPUR: Bank Negara struck a more cautious tone in its latest monetary policy statement due to "downside risks" in the economy, say analysts.
In its monetary policy statement it said “materialisation of downside risks from unresolved trade tensions, heightened uncertainties in the global and domestic environment, and prolonged weakness in the commodity-related sectors could further weigh on growth".
Anthony Dass, Ambank head of research, said in a note that the central bank's recognition of the downside risks in the economic and financial environment, and the need to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation supports its view for a rate cut later this year.
"It supports our view for a rate cut to most likely take place during the July 9 MPC meeting rather than the May 7 MPC meeting by 25bps after taking into account of some recent anecdotal evidences of the macro figures that revealed a weak trend," he said.
Meanwhile, Kenanga research concurred that Bank Negara may be a bit more concerned about the current state of the economy, based on the tone of the monetary policy statement.
According to the research house, the central bank's mention of "heightened uncertainties" implies a slight increase in the downside risk since the previous statement.
It added that the global economic trajectory is deteriorating as reflected in the latest global PMI growth data, suggesting that the current growth assumption may require a relook and the official growth forecast to be tweaked.
"Last month, we revised our GDP growth forecast for 2019 to 4.5% from 4.7% to reflect the rising uncertainty. Nonetheless, the government remained confident that it could achieve a higher growth target of 4.9% in 2019 from 4.7% in 2018," it said.
However, Kenanga believes there is no need for BNM to implement a rate cut as it may trigger a bigger capital outflow and unnecessarily weaken the ringgit.
"Barring a major external shock, we expect the OPR to remain at 3.25% this year," it said.
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