PETALING JAYA: Standard Chartered Global Research expects Bank Negara to maintain its overnight policy rate (OPR) unchanged at 3.25% and cut rates only in September.

“Our long-held view had been for the central bank to ease policy rates this year. However, following the largely neutral tone of the last monetary policy statement, we expect it to maintain status quo next week and cut rates only in September.

“We think Bank Negara would prefer to communicate changes to its monetary policy stance before sanctioning rate changes,” the research house said.

Bank Negara will announce its monetary policy decision on July 13.

StanChart said the case for a rate cut this year remains valid, despite the central bank’s largely neutral monetary policy tone.

It said the outlook for external and domestic growth is poor, while inflation was unlikely to hold back any easing impetus.

Private consumption is the key growth support; however, worsening labour-market conditions are likely to depress consumer sentiment. Private consumption eased to 5.3% year-on-year in the first quarter 2016 versus the first quarter average of 7.4% in 2011-2015.

Furthermore, it said the labour market was weakening – the unemployment rate rose to 3.5% in March (the highest since June 2010).

StanChart said job vacancies were at a multi-year low, and it estimated that manufacturing, retail and wholesale trade payrolls rose only 3.1% year-on-year in March (versus an average of 8.3% from 2011-15). Slower property price increases and financial-market volatility may also dampen spending sentiment.

“We have a neutral outlook on Malaysian Government Securities (MGS) due to more global risk aversion and defensive foreign positioning following the Brexit vote,” it said, adding that the rising ringgit volatility was likely to trigger further outflows from Bank Negara bills and short-end MGS.

It said the local demand for fixed income assets was constructive based on ample cash held by long-term investors and a weaker macroeconomic outlook.

In its view, pressure on the central bank to ease further this year had increased significantly.

“Overall, limited inflationary pressure and onshore investors’ relatively high cash levels continue to support the local bond market.

“The 1Y onshore IRS has fallen significantly since the Brexit result, while the market has started to price in a more dovish policy stance from Bank Negara. We have a short-term neutral outlook on the ringgit,” it said.