KUALA LUMPUR, March 9 — Bank Negara Malaysia’s (BNM) decision to keep the overnight policy rate (OPR) unchanged at 2.75 per cent will allow the economy to readjust to the 100 basis points (bps) rate hike made last year, said AmBank Economic Research.
In a note today, the research house said the rate hike would be expected to occur in the second quarter (2Q) of 2023 or beyond, depending on further guidance and how domestic inflation data evolve in the upcoming months.
“Against this backdrop, we maintain our call for another 25 bps increase this year, bringing the OPR back to the pre-pandemic level of three per cent.
“Moreover, the OPR at three per cent is not seen as restrictive to economic growth as that will only bring the level to where we were before the pandemic started,” it said.
AmBank said BNM’s view on risk to global growth outlook coming from “higher-than-anticipated inflation outturns” and pressure on domestic inflation would be partly contained by the “remaining spare capacity in the economy,” suggesting there was some slack in the domestic economy.
It said that domestic demand would continue to support growth due to the sustained improvement in the labour market.
However, trade activities were expected to be slower due to a dimmed outlook from the external front where exports grew only by 1.6 per cent in January this year.
Despite improving, the latest manufacturing Purchasing Managers’ Index remained under the contractionary region since September 2022, it said.
On global growth prospects, AmBank said the reopening of China’s economy and better-than-expected economic activity in the United States (US) and the Eurozone certainly boosted global sentiment.
However, the risk to global growth remained as BNM’s Monetary Policy Committee statement said that “some central banks are expected to continue raising interest rates to manage inflationary pressures”.
“The uncertain outlook is largely coming from the US Federal Funds Rate direction as recent economic data continued to point to economic strength, resulting in re-pricing of the terminal rate.
“The strength in the labour market and upside surprises in inflation numbers of late may prompt the Federal Open Market Committee to readjust their interest rates to stay higher for longer,” it said.
— Bernama
