By NST Property/ Sharen Kaur - November 3, 2023
sharen@nst.com.my
KUALA LUMPUR: Bank Negara Malaysia (BNM) has compelling reasons to keep the overnight policy rate (OPR) at 3.0 percent through 2024 and possibly beyond, barring any unexpected shocks.
This viewpoint is based on expectations that the US Federal Reserve (Fed) and other major central banks will maintain their current policy rates for an extended period in response to persistently high inflation, according to a note released today by Kenanga Research.
"We anticipate that escalating geopolitical tensions, which contribute to mounting macroeconomic uncertainty, could overshadow any emerging signs of recovery in global trade and growth. This would reinforce BNM's current policy stance, albeit for longer.
"Moreover, scant justification exists for a policy shift, given the belief that it has concluded its rate normalisation cycle, a decision underscored by the emerging indications of subsiding inflationary pressures," it said in a note today.
Kenanga Research believes that this would rein in any hawkish tendencies and allow BNM to focus on bolstering financial stability while navigating external uncertainties.
Meanwhile, BMI, a Fitch Solutions company, believes that BNM will be cautious about easing monetary policy too soon.
"The outcome of the recent Fed meeting in November hinted at a potential final rate increase in December. This possibility was noted by the BNM, highlighting that the high-interest rate environment in the US continued to exert significant downward pressure on emerging market currencies," it said.
Maybank Investment Bank (Maybank IB) said in a separate note that the latest Monetary Policy Statement (MPS) indicates that the central bank views the upside and downside risks to growth and inflation as balanced.
"While keeping the assessment of continued global growth that is however weighed down by sticky inflation and higher interest rates as well as downside risks such as geopolitical risks and tighter financial conditions, MPS also highlighted early signs of electrical and electronics sector recovery and improvement in China's economy despite its weak property market.
"We expect OPR to remain at 3.0 per cent in 2024 given our current forecasts of a moderate pick-up in gross domestic product (GDP) growth to 4.4 per cent and an inflation rate of 3.0 per cent," it said.
Source: https://www.nst.com.my/property/2023/11/974457/bank-negara-has-compelling-reasons-keep-opr-3pct
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