BNM Change of Guard: Implications on Future Policy Communication?

25 July 2016

Rates & FX View

BNM Change of Guard: Implications on Future Policy Communication?

Highlights

Highlights

¨                  BNM’s July policy decision surprised economists with a 25bps rate cut; consensus called for no change

¨                  BNM cut 2016 inflation projection to 2-3%, from an earlier forecast of 2.5-3.5%

¨                  Pre-emptive move to ensure GDP growth stays within acceptable range in 2H16

¨                  BNM appears to be breaking away from previous traditions, a potential sea change in the framework used to decide on monetary policy intentions

¨                  While our base case calls for BNM to stand pat throughout the remainder of 2016, we do not rule out a November easing move if the broader macro environment deteriorates; easing inclination unlikely to fade over the near to medium term

¨                  We upgrade our MGS yield forecasts to reflect the earlier-than-expected rate cut, and expect yields to trend down going forward through 2017 given declining global interest rates; maintain our neutral MYR view