Bank Negara Malaysia’s decision to pause on OPR hike took many by surprise including analysts who anticipated the central bank to hike a bit more, while its counterpart Indonesian is done.
OCBC in its statement on BNM’s latest move said the decision to pause is interesting because, even as it had highlighted growth concerns before, it was similarly concerned about inflation risks.
On balance, by essentially declaring that it is done with rate hikes for now, it has signalled that growth concerns are starting to manifest more strongly, just as inflation risk has relatively subsided, perhaps with a view that the government fuel and food subsidy regime is likely to stay broadly in place.
For Indonesia, even as it hiked by another 25bps to bring its rate to 5.75% today, it offered enough crumbs to the market to signal adequately that the end of the hiking cycle is here. For one, it noted that inflation has eased more than expected, especially on the core print side. The governor also said that the aggregate 225bps of hikes has done enough to curb inflation.
BI’s assessment of the global outlook also mirrors that of its Malaysian counterpart. It noted that global growth is slower than what was expected earlier, pointing out that the recession risk in Europe and US has increased, even as China’s exit from the Covid Zero policy should help things somewhat.
Hence, while both central banks put on a brave front when it comes to domestic growth potential – with Malaysia’s noting how growth will remain supported by domestic demand, for instance – they are acutely aware of the downside risks posed by external factors beyond their control.
It is not that the central banks would no longer pay attention to lingering price pressure. It is just that, in life, everything is in relative terms. And within that rubric, growth concerns will start to dominate more and more going forward. Indeed, in the case of the more export-oriented Malaysia, growth worries have already tellingly superseded those on inflation.
All in all, if you are looking for central banks that are still hiking, look elsewhere. These two are very much ready to say bye-bye to the uptick cycle.