OCBC Doesn’t Expect Any OPR Hike Moving Forward

BNM has kept its policy rate unchanged at 3.00%, in line with consensus and expectations, this comes following the surprise 25bp hike at its 3 May meeting. OCBC in its report of view was that incoming weaker activity data and easing inflation will allow the Central Bank room to remain on hold.

According to OCBC Bank Senior ASEAN Economist Lavanya Venkateswara, BNM has acknowledged that “the Malaysian economy expanded at a more moderate pace in recent months as exports were weighed down by slower external demand”. In fact, it removed its assessment from its 3 May meeting that “risks to the domestic growth outlook are relatively balanced”. BNM, however, held onto its expectation of “resilient domestic demand” being the main driver of growth for the rest of 2023. Specifically, it noted that “tourist arrivals have been steadily improving, and are expected to continue rising”.

She said the bigger change was on its assessment of inflationary pressures. Specifically, BNM noted at its 3 May meeting that “the balance of risk to the inflation outlook is tilted to the upside” but did not include such an assessment at its 6 July meeting. It did, however, maintain that the “risks to the inflation outlook remain highly subject to the degree of persistence in core inflation, changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.”

Finally, the Economist noted that BNM stated that its policy stance was still “slightly accomodative”, similar to its 3 May meeting, and stressed that it would remain data dependent “to inform the assessment on the outlook of domestic inflation and growth”. BNM, specifically, noted that it “sees limited risks of future financial imbalances”.

As such, OCBC believes that BNM is now more sanguine about the growth and inflation outlooks but has stopped short of sounding less hawkish. This is justified not just by external factors including the continued hawkish drumbeat of global central banks but also domestic factors including sticky core inflation pressures and the inflationary impact of potential changes to the government’s subsidy policies.

OCBC said its forecast, therefore, remains for BNM to remain on hold for the rest of this year. The risk to forecast is overly hawkish global central moves as well as upward adjustments to subsidied prices, particularly of fuel.

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