Malaysia’s central bank is expected to raise the overnight policy rate (OPR) in July, and will maintain the current level even if the US Federal Reserve raises its policy rate, several times over economists say.
They opined that Bank Negara Malaysia (BNM) will maintain the Overnight Policy Rate (OPR) at 2.75 percent at its Monetary Policy Committee meeting in early May before making a 25 basis point (bps) increase in the second half of the year.
After May, the next MPC meeting will be held in early July.
The US Federal Reserve raised its federal funds rate by 25bps to 4.75-5.00 percent, the highest level since September 2007, on Wednesday.
Bank Muamalat Malaysia Bhd’s head of economics and market analysis, Dr Mohd Afzanizam Abdul Rashid said Bank Negara was “very independent” in its economic assessment and monetary policy decisions.
Bank Muamalat, he said, still hopes for a 25-basis point increase in OPR in the second half of 2023.
“Although the Feds are expected to be more dovish in the future, the same cannot be said about Bank Negara. This is considering that the Malaysian economy grew at a strong rate last year at 8.7 percent.
“We can see total real estate transactions growing at a fast clip of 23.6% in 2022 compared to the 30-year compound average growth rate (CAGR) of 7.0 percent per annum,” Afzanizam said.
He added, that normal economic activity shows that domestic demand continues to be strong. The same can be said for automotive sales, which rose 39 percent in February, Afzanizam added.
Meanwhile, economist Datuk Jalilah Baba said the Fed’s move will affect the Bank Negara’s policy rate.
Jalilah said that the increase in interest rates will cause loans to become more expensive for private companies and individuals.
“This will cause less spending by households and companies as well, but it may also lower the prices of goods and services. At the same time, this situation may affect businesses negatively because spending will be limited,” he said.
Putra Business School economic analyst, Associate Prof Dr Ahmed Razman Abdul Latiff said, Bank Negara will be pressured to reduce the rate gap between Malaysia and the US.
The gap, which widened to 2.00 percentage points, will affect the decision of investors to invest in Malaysia as they will be more interested in investing in the US, he added.
Ahmed Razman said, the increase of the Fed will result in the US economic activity slowing down. This will have a negative impact on Malaysia’s economy caused by the decrease in export demand to the US.
He expects an increase of 25 basis points in the OPR in May, subject to the movement of the inflation rate in the coming months.
Kenanga Research said Bank Negara is likely to keep the OPR unchanged at 2.75 percent for the remainder of 2023, although the Fed chairman has cited the move as defending the resilience of the banking sector and efforts to fight inflation. “However, the possibility of any rate decision to adjust the policy rate depends mainly on inflation trends and growth prospects, and to a certain extent any major fiscal policy decisions made by the government,” he said.
