OPR in focus

       BANK Negara is expected to maintain the overnight policy rate (OPR) at 1.75% during the Monetary Policy Committee meeting on Thursday.

       Economists largely feel that the current low interest rate environment is sufficient to accommodate the economy.

       UOB Global Economics and Markets Research expects Bank Negara to keep the policy rate unchanged at 1.75% in July.

       It said with additional fiscal aids to cushion the impact of a full movement restriction, UOB expects the central bank to monitor the fluid situation.

       It added that the resumption of rate cuts may be tough in an environment of higher inflation expectations and other central banks maintaining the status quo.

       AmBank Research also expects the OPR to be maintained at 1.75%. This is despite the heightened uncertainties driven by the pandemic and supply chain disruptions, as well as the delay in the reopening of the economy.

       It said the OPR is unlikely to be tightened in 2021 but more so in 2022 despite downside risk to growth.

       The research house said headline inflation, which lost some steam in May, was expected to hover around 3.0%-3.5% for the full year. This would mean the average inflation for the next seven months would be around 3.6% to 4.5%.

       CGS-CIMB Research and MIDF Amanah Investment Bank expect Bank Negara to leave the OPR at 1.75% in the second half-year.

       CGS-CIMB Research believes the central bank will let its monetary policy remain loose as the economy operates below potential.

       The research house also pointed out that the headline inflation could decelerate for the rest of the year. CGS-CIMB Research’s annual inflation forecast for 2021 is reiterated at 3.1% year-on-year as compared to Bank Negara’s 2.5% to 4% forecast.

       In addition, Bank Negara is expected to release its international reserves figure as at June 30 on Wednesday.

       Worldwide services, composite PMIs

       ACCORDING to IHS Markit, worldwide services and composite Purchasing Managers’ Indexes (PMIs) will be released this week.

       It said the June manufacturing PMIs reflected continued divergence between the likes of United States and Europe against Asian economies amid the resurgence of Covid-19.

       IHS Markit said the services sector, more sensitive towards containment efforts, would be watched for how it fares across the different regions in June.

       RBA meeting

       THE Reserve Bank of Australia (RBA) will announce its latest policy decision tomorrow. It is widely projected that the RBA will keep its cash rate unchanged at 0.1%.

       UOB now expects the RBA will moderately taper its quantitative easing by announcing a further A$75bil (RM234.26bil) programme once the current A$100bil (RM312.35bil) tranche of buying ends in September.

       UOB said it now seemed clear that the RBA has no intention of extending the yield curve target bond from April 2024 to November 2024.

       The research house also expects that the term funding facility will not be extended.

       Fed FOMC minutes

       The US Federal Open Market Committee (FOMC) minutes from the June 15-16 meeting will be released this week and scrutinised for details after having surprised markets with projections of earlier-than-expected interest rate hikes.

       Clues as to when tapering may commence will be watched, with IHS Markit expecting tapering to begin in 2022.