Most economists foresee BNM maintaining OPR at 2.75%

• "We believe loan growth will be supported by the resilient household sector on the back of improved income and steady labour market conditions, as reflected in the lower unemployment rate,” Kenanga said.

KUALA LUMPUR (May 2): A majority of economists predict Bank Negara Malaysia (BNM) will maintain the overnight policy rate (OPR) at Wednesday’s (May 3) monetary policy committee meeting, after the key rate was raised four times since mid-last year to 2.75%.

According to Bloomberg as of Tuesday afternoon, 16 out of 18 economists said BNM will keep the OPR at 2.75% — a rate unchanged since November last year. Only two firms, namely Bank of America National Association and Standard Chartered Bank, put out an estimate of 3%.

Outside of the Bloomberg poll, United Overseas Bank (UOB) was another firm that expects another OPR increase to 3% and for it to stay at that level, according to its note released last Friday (April 28).  

UOB’s senior economist and senior vice-president Alvin Liew said there is room for further normalisation of monetary policy, on the back of sticky core inflationary pressures, still positive domestic growth momentum and domestic financial stability.

“Thereafter, BNM will leave the OPR unchanged for the rest of the year, in [cognisance] of a softer inflation outlook globally in the second half of 2023 (2H2023), an expected end to global rate hike cycle by mid-2023, and rising recession risks in advanced economies,” Liew said in a note.

Meanwhile, RHB economist Chin Yee Sian and associate research analyst Wong Xian Yong, in a note released last Friday, said the central bank is assessing the hike impact where the external environment remains challenging, and the headline inflation rates have shown some signs of stabilisation.  

Inflation in Malaysia eased to 3.4% — a nine-month low — in March 2023, with the consumer price index at 129.9.

Nonetheless, Chin and Wong said RHB maintains its peak OPR forecast of 3.25% with the balance of risks tilted towards 3%, in consideration of a longer-than-expected pause in policy normalisation and possible delays in subsidy rationalisation.

Subsidy rationalisation — including targeted diesel subsidy, on which a draft mechanism is expected to be ready by 2H2023 — is part of structural reforms mulled by the government in light of the country’s tight fiscal position.

“Despite the slight moderation of headline inflation momentum in recent months, the core inflation momentum remains sticky amid resilient domestic demand pressure, further fuelled by prolonged low interest rates environment.  

“The negative carry for holding ringgit against the US dollar is unlikely to fade quickly in the short term as the central bank is falling behind the inflation curve and is yet to provide concrete guidance on what the peak OPR is after having been in pause mode since November 2022,” they said.  

Meanwhile, Kenanga Investment Bank Bhd said it expects BNM to keep the OPR at 2.75% for the rest of 2023, barring an exceptional risk to growth in gross domestic product and inflation outlook.

Kenanga does not rule out a further monetary policy adjustment by 25 basis points if inflationary pressure remains elevated due to a stronger-than-expected household spending.  

“However, given the uncertainty of the global growth outlook with the relatively weak external trade and commodity prices, we see a limited probability for BNM to further hike rates this year,” the firm said.  

In terms of loan growth forecast, Kenanga kept it between 4.5% and 5.0% in 2023, as compared to 5.7% in 2022.  

“We maintain our outlook that loan growth will moderate further by the end of the year amid the impact of tighter financial conditions by BNM cumulative rate tightening from a year ago. This also takes into account the waning lower base effect and the normalisation of economic activities post-pandemic.

“However, we believe loan growth will be supported by the resilient household sector on the back of improved income and steady labour market conditions, as reflected in the lower unemployment rate,” Kenanga said.