Bank Negara Malaysia’s (BNM) decision to maintain the Overnight Policy Rate (OPR) at 3.0 per cent today is in line with market expectations, according to MIDF Research.
The central bank highlighted the global economy remains firm, underpinned by resilient domestic demand amid strong labour market conditions, the research house said in a note.
However it said the current focus of BNM’s monetary policy setting is to ensure a sustainable growth momentum in Malaysia’s economy. Malaysia’s domestic economy continues to surprise market expectations, especially the distributive trade sales performances, tight job market, and sticky core inflation (5MCY23: +3.8% vs. 2022: +3%).
MIDF believes BNM will consider another 25bps rate hike in 2HCY23 following the stronger-than-expected domestic economy. In addition, BNM may optimise its monetary arms by normalising its Statutory Reserve Requirement (SRR) from 2.00% to 3.00% this year.
The SRR rate was reduced to 2.00% since Mar-20. However, the decision will be subjected to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions, particularly a 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
