BNM would keep its overnight policy rate (OPR) unchanged at 1.75% until 2H22 with the possibility of a 50 bps rate hike by BNM by year-end, Kenanga Research said in a note.
It said that it continues to believe BNM would adopt a cautious policy stance in its upcoming policy meetings, however, BNM’s policy stance may gradually tilt towards tightening if the economic recovery gathers momentum leading to the build-up of a demand-driven inflationary trend.
Kenanga said that would very much depend on BNM’s interpretation of economic indicators to determine the sustainability of economic growth.
On the Federal Reserve, the stockbroking firm said that it jacked up its key policy rate by 50 basis points (bps), its first half a percentage point increase in 22 years (since May 2000), bringing the federal funds target rate range to 0.75%-1.00% (prev: 0.25%-0.50%). All the members of the Federal Open Market Committee (FOMC) voted in favour.
Kenanga said that the Fed is putting most of its focus on inflation as it considers the labour market strong enough to withstand higher interest rates.
“The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID- related lockdowns in China are likely to exacerbate supply chain disruptions,” the Fed’s statement said.
Kenanga said that while reiterating that a 50 bps rate hike would be on the table in its next meetings Chairman Jerome Powell ruled out a 75 bps hike in the immediate future which took the steam out of market speculation that the Fed would further ratchet up its pace of tightening, causing the US bond and the equity markets to rally.
