Several local investment banks have predicted that Bank Negara Malaysia (BNM) will further increase the overnight policy rate (OPR) by at least another 25 basis points (bps) by end-2022. This follows the footsteps of the US Federal Reserve, which hiked its rates by 75bps on Wednesday in a bid to tame the elevated inflation in the United States.
Hong Leong Investment Bank Bhd maintains its expectation that BNM will raise the OPR by 25bps in its next Monetary Policy Committee (MPC) meeting in September, thereby raising the OPR from the current 2.25% to 2.50% by the end of the year. Earlier this month, it had predicted that the central bank will likely increase the OPR to 2.50% by end-2022 to take advantage of an improved gross domestic product (GDP) growth expected in the second quarter of this year.
“The reopening of international borders, transition to Covid-19 endemic status, and special Employees Provident Fund withdrawal scheme are expected to support Malaysia’s gross domestic product (GDP) in the second quarter of 2022,” Hong Leong Investment Bank explained in a separate note, ahead of the announcement of the country’s GDP (2Q22) in August.
Meanwhile, Kenanga Investment Bank Bhd holds on to its prediction that BNM will hike the OPR by at least 25bps in both the remaining MPC meetings for 2022 (September and November). This will ultimately bring the OPR to 2.75% by the end of the year.
The investment bank explained that similar to the US Federal Reserves, BNM may bump up the OPR to control the growing inflation in the country. Data from the Department of Statistics Malaysia (DOSM) indicated that Malaysia’s inflation rate had spiked to a higher-than-expected 3.4% in June 2022 from 2.8% in the previous month. This was attributed to the significant increase in domestic demand and tourism-related spending following the reopening of the international borders and the easing of Covid-19 restrictions.
“This [rising inflation in the country], along with the expectation that GDP growth would continue to be driven by the stronger recovery in domestic demand, we expect BNM would continue to maintain its hawkish tilt and would raise its overnight policy rate (OPR) by at least 25 bps each at its remaining two MPC meetings for this year,” Kenanga Investment Bank explained.
BNM has already raised the OPR by a total of 50 bps this year – up by 25bps in May, and another 25 bps in July – raising it up from a record low of 1.75% to 2.25%. Aside from these local investment banks, several other research firms also expect Malaysia’s OPR to settle between 2.50% to 2.75% by the end of this year.
(Sources: The Star, Kenanga Investment Bank Bhd)
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