PETALING JAYA: There will be at least one more 25bps hike from Bank Negara Malaysia (BNM) this year, with a high likelihood of it taking place in the next immediate meeting on Sept 8, said OCBC Bank chief economist Selena Ling (pix).
“It might then pause in the last meeting of the year in November to assess the balance between inflation and recession risks before undertaking any action thereafter,” she said in a statement today.
Going forward, the bank sees more rate hikes coming from BNM. Against the backdrop of rising global interest rate settings and some domestic inflation pressure, there is also a growing chance of back-to-back rate hikes rather than a more drawn-out cycle.
“For the year as a whole, we see inflation to be averaging 2.9% year-on-year (y-o-y) for Malaysia. While the food prices may remain a major driver of inflation, the upside is likely to remain capped by continuing subsidy schemes by the government. Indeed, by the Finance Minister’s telling, the inflation rate could have been quadruple of existing level if not for such subsidies.”
Ling said it is heartening to note that Malaysia had started the year on a strong footing, with GDP growth clocking a higher-than-expected 5% y-o-y, for instance. Still, the potential headwinds posed by a slowdown in the major economies are likely to present tougher times for the Malaysian economy. As fortunate as it is to enjoy a domestic demand uplift, the exports component cannot be ignored, on its own and on account of how it feeds to the overall economy through employment recovery, especially.
“Hence, even though our forecast for the full-year GDP growth would naturally go up to account for the upside surprise in Q1, the outturn for the later parts of the year looks less promising than before. In net terms, it now sees the full-year 2022 growth at 5.7% y-o-y, a measured uptick from 5.4% before. Furthermore, should growth outturns in major export destinations such as China and the US slow down markedly from here, Malaysia’s growth trajectory will be weighed down as well, unfortunately, even if remains respectable.”
When it comes to the exchange rate movement, Ling views that the recent relative weakening in the ringgit vis-à-vis the US dollar should be seen in the context of the broad dollar strength, rather than a move pertaining to the ringgit. Against a basket of currencies, the ringgit has recently rebounded and is trading at levels near the peak strength since September 2020.
“US dollar/ringgit is biased to the upside near-term on broad dollar strength as global recession worries grow, while BNM is likely lagging the Fed in hiking rates in relative magnitude of the move. Further out, when the most aggressive Fed rate hikes are out of the way, and with potential for Malaysia’s current surplus to widen back (when imports bills and repatriation of income normalise), there is room for US dollar/ringgit to fall towards 4.3800 by year-end.”
