KUALA LUMPUR: Bank Negara is likely to maintain its accommodative stance and keep the overnight policy rate (OPR) steady through at least the first half of this year.
AmBank Research chief economist Firdaos Rosli said for now, he does not see Bank Negara having the appetite to act on OPR. “This is because the necessary conditions for the OPR to stay at 3% are still there,” he said at an economic briefing here yesterday.
That said, he noted there were many potential risks over the next one year.
“There is a risk for OPR to be cut rather than a hike as downside risks on growth become more pronounced amidst global monetary easing.”
He said in this case, a worst-case scenario of the ringgit possibly touching 4.60 – 4.65 per US dollar could not be discounted, as yield differentials would widen again, given more staggered cuts by the US Federal Reserve.
“One of the biggest challenges for us will be to constantly keep up with the announcements, there will be variations and there is not going to be a straight line, so to keep up with all that will be a challenge,” Firdaos said.
He added the ringgit remains undervalued on a real effective exchange rate (REER) basis.
Comparing the local note’s current level to the historical average of around 3.80 per dollar, he said there is still room for the ringgit to appreciate.
The possible conversion of export proceeds could also prop up the currency while repatriation of funds would also help shore up the ringgit, he added.
For this year, Firdaos said Malaysia's economic growth is expected to be around 4.6%, marginally lower than the 4.9% estimated last year.
However, at this rate, the country’s economy is “comfortably above any recessionary territory.” He said the economy has ample room to expand over the next 12 months.
An investment upcycle that appears to be already underway could lend further support for the economy and currency.
On global markets, he noted that inflation was no longer a big threat to the US economy. However, it is still higher than the 2% level but all in all, the US economy has been resilient, he said.
Admittedly, Trump tariffs 2.0 will bring about new issues, and Malaysia is likely to experience indirect effects from these tariffs but may also benefit from trade and investment diversions, Firdaos said.
He noted that China remains Trump’s primary target.
"However, we don't think China is going to be as severely affected as last time, it won't be a carbon copy of Trump 1.0," Firdaos said.
