Maybank Investment Bank believes Bank Negara Malaysia (BNM) may give a surprise by either holding the Overnight Policy Rate (OPR) or making a “dovish hike” accompanied by explicit language to signal a pause ahead.
This is aimed at curbing the negative feedback loop, according to the investment bank.
“Another OPR hike in January could reinforce the upward spiral on the three-month Kuala Lumpur Interbank Offered Rate (3M Klibor), in our view, unless a compensating liquidity measure is announced,” it was quoted as saying in a note.
If the OPR is kept at 2.75%, analysts expect the three-year Malaysian Government Securities yield to fall to 3.25-3.40%, barring any US rates selloff, and 3M Klibor to start easing gradually, Maybank IB said.
The market overwhelmingly anticipates BNM to raise the rate by 25 basis points, its fifth in a row, at the Monetary Policy Committee (MPC) meeting on Thursday, according to the investment bank’s note.
“From a rates strategy perspective, we think investors may want to position for a surprise hold by BNM, considering that the market is already well-priced for additional hikes in OPR to around 3.25%.”
“It is true that languages in the last MPC statement in November keep the door open for more hikes, but not without a caveat indicating that rate normalisation is not on any preset course,” Maybank IB stated.
Domestic growth is expected to slow considerably to 4.0% from an estimated 8.0% last year, it said.
“Inflation is subject to volatility depending on the timing and extent of administrative price adjustments. Demand-pulled inflation requires monitoring, but may not necessarily sustain if the reopening effect begins to subside and policy tightening weighs,” Maybank IB remarked.
“Considering the OPR has already reached 2.75% which we think is one to two hikes away from neutral-restrictive areas, BNM can afford to pause.”
It also added that currently foreign exchange stability is not an issue.
A key matter to consider is the relentless rise in 3M Klibor which has persisted beyond end-2022, Maybank IB said.
“It was last fixed at 3.71%, giving an extremely wide 96-basis point spread over the OPR, which likely reflects a combination of hawkish rate outlook and interbank liquidity tightness,” it noted.
