KUALA LUMPUR (March 10): Bank Negara is likely to maintain the overnight policy rate (OPR) at 3.25% in 2016, amid weak economic factors, RHB Investment Bank said today.

In a note, the research firm said this is due to the impact of rising inflation to be kept in check by weak energy prices, a weak ringgit and weak economic growth prospects.

“While Bank Negara views that overall domestic financial conditions have remained relatively stable since the previous MPC meeting and liquidity remaining sufficient, we would like to highlight that overall liquidity has fallen with the slowing of broad money supply and loan growth to 2.7% in 2015, from an increase of 7% in 2014,” the note read.

“With inflation unlikely to pose a threat going forward, following still weak energy prices, while the ringgit is expected to remain weak and after taking into consideration the country’s weakening growth prospects, the central bank will likely put rates on hold for some time.”

The research firm was commenting on the central bank’s decision to keep the OPR rate unchanged at 3.25% for the 10th consecutive Monetary Policy Committee (MPC) meeting yesterday and the Statutory Reserve Requirement (SRR) ratio unchanged at 3.5%, which it had lowered from 4% on Jan 21, 2016.

RHB Investment Bank said it has lowered its forecasts of the inflation rate to be sustained at a growth of 2.1% for this year, the same pace as 2015 and from an earlier estimate of an increase of 2.7%, following the sharp reduction in petrol prices in February and March, amid weak domestic demand.

The research firm said Bank Negara still expects inflation to be higher, compared to 2015, given the adjustments in administered prices and the weaker ringgit exchange rate.

However, this is expected to be mitigated by the continued low energy and commodity prices and the generally subdued global inflation, the firm said.

RHB Investment Bank also said the central bank did not further lower the SRR ratio against its expectation of another 50 basis points reduction, likely due to the stabilisation of financial conditions of late as capital outflow pressures ease.

The note stated that Bank Negara expects the Malaysian economy to be driven by domestic demand and while private consumption is expected to moderate, household spending will continue to be supported by the growth in income and employment, and the additional disposable income from the measures announced during the 2016 Budget Recalibration.

“Overall, investment will continue to be supported by the implementation of infrastructure development projects and capital spending in the manufacturing and services sectors,” the note read.

“The external sector is expected to record a modest improvement and provide additional support to the economy.”