Online property platform, Juwai IQI forecasts Bank Negara’s upcoming sixth and final Monetary Policy Statement of 2023 to keep the Overnight Policy (OPR) rate unchanged to avoid surprising the market or squeezing the economy
Group CEO Kashif Ansari said “The housing and financial markets like when rates fall, but they don’t like surprises, and a decision not to adjust the rate has been widely expected.
“All indicators suggest that we don’t need higher rates. Inflation is under control and economic growth has cooled. Because the Bank was one of the first in the world to start raising rates in this cycle, Malaysia was able to beat inflation without a recession. That has been good for the housing market.
He added “The Ringgit has fallen low against the U.S. dollar, and some have called for Bank Negara to increase the OPR to help stem the Ringgit’s fall. Interest rates are lower in Malaysia than in the U.S., so many investors are moving their money to America for the higher returns on cash and bonds. By increasing the OPR, the Bank would hope to help the Ringgit regain some of its value.
The Bank may yet do this in 2024. Strong household finances and strong employment are two of the indicators the firm looked at to evaluate how housing demand is likely to trend. Both are in good shape.
Ansari noted that one of the statistics his company looks to get a sense of household finances is the household debt-to-GDP ratio. In June, that ratio was 81.9%, hardly changed from 81% in December of 2022 and much better than 84.4% of a year earlier. Another ratio is the median debt to income (DTI) ratio. When this goes up, it means families are taking on more debt relative to their earnings, which often leads to more families ending up unable to pay their mortgages and losing their homes. The DTI ratio is basically stable at 1.4.
Among those earning less than RM 3,000 per month, it’s an even better 1.3. The third indicator that helps us know if households are in good financial shape is the median debt service ratio (DSR). For newly approved household loans, that ratio is 42%, and for outstanding household loans it is 36%. Both are safe numbers. The debt service ratio shows that households have more than enough income to pay off their debt he concluded.
Bank Negara’s decision to leave the Overnight Policy Rate unchanged this month will help sustain the current economic growth and help more people afford to buy their own homes, which is the key to economic security. In 2024, if the U.S. Federal Reserve continues to maintain its “higher for longer” interest rate regime, Bank Negara will come under more pressure to raise rates and stem Ringgit’s fall.
