KUALA LUMPUR (July 9): Bank Negara Malaysia (BNM), which is scheduled to announce its monetary policy decision on Wednesday (July 11), is expected to keep the overnight policy rate (OPR) on hold at 3.25% and maintain a neutral stance, says Standard Chartered Bank (StanChart) chief economist for Asean and South Asia Edward Lee Wee Kok.

"The effective zero-rating of the goods and services tax as of June 1 is likely to result in a one-off dip in inflation. However, BNM is likely to look past the volatility in inflation and focus on growth in its monetary policy decision making," he said in a report today.

Lee is maintaining his status-quo call for 2018 as he expects Malaysia's growth to moderate from strong levels in 2017, but remain firm.

"A potential risk to our call is if the ringgit faces strong depreciation pressure on broader weak risk sentiment, resulting in the need for the central bank to hike rates to maintain foreign exchange stability," he added.

On Malaysia's May industrial production (IP) data that will be released on Thursday (July 12), StanChart is expecting IP growth to ease to 2.8% year-on-year (y-o-y) from 4.6% in April, due to three fewer working days in May this year of 18 compared with last year's 21 as the election polling day and two days post-election were declared holidays.

"We think the mining sector was supported by a pick-up in crude oil production (3.4% y-o-y) likely due to higher oil prices. However, the sector may have been weighed down by a 7.8% y-o-y fall in crude palm oil (CPO) production due to lower CPO prices," said Lee.

"Passenger car production fell 7.5% y-o-y and probably also weighed on overall IP growth," he added.