Bank Negara held the Overnight Policy Rate at 3.00% yesterday, as widely expected. I tried to explain it fully at Asean Confidential (Sorry, you have to pay for that. I gotta pay for my nasi goreng).
But what if the OPR had purely tracked the Taylor rule?
The drop is due to slower GDP growth and low inflation. I expect both to accelerate later in the year and so, you can see the Taylors rule rate creeping up.
I do not expect the Bank Negara to follow this particular Taylor rule of mine because there are some deficiencies with it. The rule at the moment uses full GDP growth and headline inflation. I want to fine-tune it by replacing the two factors with domestic demand and core inflation respectively instead but… I have been too lazy to do that.
But in any case, for first-pass rough analysis, I think this particular model does help in an actual crisis. Drastic Taylor rule rate movement leading to stabilization at some rate did precede OPR movement.