KUALA LUMPUR, Sept 14 — BMI, a Fitch Solutions company, expects Bank Negara Malaysia to hold its overnight policy rate at 3.00 per cent until the end of 2024 as domestic inflation continues to ease amid slowing economic growth.
It noted that the Malaysian central bank had on the Sept 7 monetary policy meeting left the overnight policy rate (OPR) unchanged, which was in line with its consensus and expectations.
“We continue to expect BNM to keep its OPR on hold at the next meeting on Nov 6 (the last meeting for 2023) and through the end of 2024,” it said in a statement today.
BMI observed that the country’s domestic inflation has been on a steady downward trajectory, with headline inflation easing from 2.8 per cent year-on-year in May to 2.0 per cent in July 2023.
“The improved inflationary backdrop implies that Malaysia’s real policy rate is now in positive territory, which since 2006 has typically coincided with the end of the tightening cycle,” it said.
“As such, we believe that the current policy stance is sufficient to keep inflation in check and that the central bank will remain on hold for now.”
BMI said the faster-than-expected easing of prices has, in turn, prompted it to lower its end-2023 inflation forecast to 1.8 per cent from 2.0 per cent previously Accordingly, BMI has adjusted its forecast for inflation to an average of 2.6 per cent in 2023 from 2.7 per cent previously, marking a significant slowdown from 3.4 per cent in 2022.
On the ringgit, it reckons that the central bank would be mindful of loosening monetary policy too soon.
“The ringgit has come under significant pressure, having weakened by 5.9 per cent against the US dollar year-to-date, (making it) one of the weakest currencies in the region.
“A swift return to monetary loosening will therefore run the risk of exacerbating further downside pressure on the ringgit, at a time when global monetary conditions remain restrictive,” it said.
Despite remaining above its historical average, Malaysia’s core inflation, according to BMI, has continued to ease from 3.5 per cent y-o-y in May to 2.8 per cent in July and is on track to achieve BNM’s projections for core and headline inflation to average between 2.8 and 3.8 per cent in 2023.
“While we expect growth to pick up in the second half of 2023, our prevailing forecast for Malaysia’s real gross domestic product growth of 4.0 per cent in 2023 sits at the lower end of the central bank’s 4.0-5.0 per cent target, and falls short of the pre-pandemic average (2015-2019) of 4.9 per cent,” it noted.
— Bernama
