CGS-CIMB sees another hike in 2H2023, bringing the OPR to 3.25%

• “We believe there could be one more OPR hike by end-2023 to 3.25%. A key risk is whether a global slowdown could be sharper than expected. If this happens, there is a possibility that Bank Negara may halt the rate hike cycle despite ongoing improvements in the domestic economy,” CGS-CIMB economists Nazmi Idrus and Mas Aida Che Mansor wrote in a report dated Wednesday (May 3).

KUALA LUMPUR (May 4): While most economists see no further overnight policy rate (OPR) hikes by Bank Negara Malaysia for the remaining three monetary policy meetings in 2023, CGS-CIMB Research sees the possibility of another increase in the second half of this year.

“We believe there could be one more OPR hike by end-2023 to 3.25%. A key risk is whether a global slowdown could be sharper than expected. If this happens, there is a possibility that Bank Negara may halt the rate hike cycle despite ongoing improvements in the domestic economy,” CGS-CIMB economists Nazmi Idrus and Mas Aida Che Mansor wrote in a report dated Wednesday (May 3).

After two consecutive pauses in early 2023 at 2.75%, Bank Negara raised the OPR by 25 basis points (bps) on Wednesday to 3%, its first increase for the year.

The rate hike came as a surprise as 16 out of 19 economists surveyed by Bloomberg had forecast another pause by Bank Negara, so that the central could further assess the impact of the four straight increases to the key rate last year that raised it by a cumulative 100bps.

CGS-CIMB acknowledged that Bank Negara’s hawkish move came earlier than the research firm’s expectation of two 25bps hikes in the second half of this year.

“Regardless, we maintain our forecast trajectory for monetary policy with end-2023 OPR at 3.25%, implying another (hike of) 25bps in 2H2023,” said the economists.

Given the positive tone in the Monetary Policy Committee (MPC)’s statement on the Malaysian economy, CGS-CIMB anticipates that the gross domestic product (GDP) growth in the first quarter of this year (1Q2023), which will be announced next week, could surprise on the upside.

“The central bank’s positive outlook on the economy was demonstrated further by the formal announcement of the lifting of the Covid-19 monetary stimulus.

“Bank Negara justified the current rate hike, as there are ‘no signs of excessive tightening affecting consumption and investment activities’. One of the key reasons that Bank Negara paused rate hikes in January was to assess the cumulative OPR adjustments,” Nazmi and Mas Aida explained.