Malaysia Strategy:Rate cuts,delaying the inevitable

Event

Bucking our expectation for a second straight 25bps cut to the benchmarkOvernight Policy Rate (OPR) following a maiden 25bps reduction at its lastMonetary Policy Committee (MPC) meeting in July, Bank Negara (BNM) heldOPR steady at 3%. BNM indicated it deems the current degree of monetaryaccommodativeness as “consistent with ensuring the domestic economycontinues on a steady growth path.” However, economic data points continueto surprise negatively, with the 1H16fiscal deficit annualising at 5.5% (vs a3.1% 2016forecast) and July exports contracting a severe 5.3%. Witheconomic drivers and CPI continuing to decelerate even as “twin deficit” riskmounts, we reiterate our expectation for a further 50bps cut in OPR into1Q17; beneficiaries would be dividend stocks, USD exporters and companieswith refinancing potential.