MIDF is of the view that OPR will be back to the 2019 level come next year. Considering upbeat macro performances, the research house believes BNM will further front-load policy normalisation at the first MPC meeting in Jan-23, raising OPR by another 25bps.
Monetary policy space for the central bank will be accorded with OPR returning back to normal level at 3.00% by Jan-23, in the event of a worse-than-expected global economic slowdown. However, MIDF notes the decision will be subject to the stability of economic growth, the pace of price increases, and a further improvement in macroeconomic conditions, particularly with continued recovery in the labour market and growing domestic demand.
From a medium-term perspective, the policy rate normalisation is needed to avert risks that could destabilize the future economic outlook such as persistently high inflation and a further rise in household indebtedness. If the Malaysian economy were to grow faster than expected, it does not discount the possibility of another 25bps rate hike in 2HCY23.
As for the local currency, 2023 could see the Ringgit stabilising to RM4.23 by end-2023. Strong USD has been the main factor for the depreciation of most currencies in 2022, mainly influenced by the faster-than-expected and more aggressive interest rate hikes by the Fed. As the Fed indicated expectations for slower hikes, MIDF said it noticed modest appreciation of other currencies including MYR since Nov-22.
For the record, the Malaysian ringgit performed better than other major currencies as of 10MCY22. For instance, MYR gained +12.4%yoy against JPY, +6.7%yoy against EUR, +2.2%yoy against AUD, and +5.2% against GBP. Fundamentally, MYR is in a good position as the domestic economy stays on upbeat momentum and as a net commodity exporter of crude petroleum, LNG, and palm oil, Malaysia stands to benefit from the elevated global commodity prices. On top of that, the formation of a unity government after GE15 improves market confidence and injects political stability into Malaysia’s economy, which has been positive for MYR’s outlook.
Moving forward, the house foresees MYR to average stronger at RM4.30 per and ending the year 2023 at RM4.23.
