KUALA LUMPUR, July 7 — Analysts believed Bank Negara Malaysia (BNM) will further normalise its policy rate going forward and gradually raise the Overnight Policy Rate (OPR) to 3.00 per cent by next year.
The majority believed the rate hikes would continue for the remainder of the year amid rising inflation and BNM would continue its policy tightening further in the upcoming Monetary Policy Committee (MPC) meetings.
In a note, Kenanga Investment Bank Bhd said further rate hikes are expected largely due to the upward pressure on inflation amid rising food prices and a sustained recovery in domestic demand as reflected in the latest high-frequency indicators such as unemployment rate, retail sales and imports.
This is also in tandem with the global central bank’s monetary policy tightening cycle predominantly to combat rising inflation, it said.
“Nevertheless, it is unlikely that BNM would embark on an aggressive tightening cycle such as a 50 basis point (bps) hike unless the inflation rate overshot its target range driven by stronger than expected domestic demand.
“Likewise, we retain our forecast that BNM will gradually raise the OPR by 25 bps each in the September and November MPC meetings, with the final hike in the first quarter of 2023. Therefore, the policy rate is expected to settle at 2.75 per cent by the end of this year and 3.00 per cent for 2023,” it said.
CGS-CIMB Securities Sdn Bhd said BNM is expected to monitor economic developments going forward, especially if the growth in domestic demand is strong and unfettered amid the large subsidies.
“In that eventuality, a third rate hike this year could even be on the cards. Next year, we price in a further 50 bps in rate hikes, putting the end-2023 OPR at 3.00 per cent,” it said.
AmBank Research, meanwhile, expects BNM to adopt a more aggressive stance in a move to cool inflation and help support the weakening ringgit not just against the US dollar but also on cross rates.
“We gather that a 50 bps hike one-off seems highly unlikely. We are of the view that OPR will end at 2.50 per cent-2.75 per cent in 2022, suggesting one to two more rate hikes, with another two hikes in 2023 to 3.00 per cent-3.25 per cent,” added the research house.