OCBC said Bank Negara Malaysia’s policy rate hike by 25bp to 3.00%, surprised consensus and expectations which the bank considered the recent mix of weakening external data and easing inflation had suggested that the Central Bank would not be inclined to hike further.
While BNM stated that the “risks to the domestic growth outlook are relatively balanced”, it included “stronger-than-expected tourism activity” as an additional upside risk to growth compared to its 9 March statement which only stated the “implementation of projects including those from the re-tabled Budget 2023” as the main upside risk.
BNM had maintained from its previous meeting that “the balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy including on subsidies and price controls, financial market developments, as well as global commodity prices.”
OCBC said the above assessment is consistent with its view that domestic demand remains resilient; the bank expects Q1 GDP growth to remain strong at 5.1% YoY from 7.0% in Q4. As a result, also expect core inflation to ease at a slower pace than headline inflation.
Looking ahead, OCBC expects BNM to remain on hold for the rest of 2023. With this decision, BNM declared that it has “withdrawn the monetary stimulus intended to address the COVID-19 crisis in promoting economic recovery”. That said, BNM has not closed the door on further tightening citing “the need to ensure that the stance of monetary policy is appropriate to prevent the risk of future financial imbalances.” At any rate, with BNM assessing that “at the current level, the monetary policy stance is slightly accommodative and remains supportive of the economy” it has signalled that looser monetary policy conditions are not on the cards for now.
