Bank Negara Malaysia (BNM) kept Overnight Policy Rate (OPR) at 3.00% after its first Monetary Policy Committee (MPC) meeting of this year on 23-24 Jan i.e. fourth consecutive MPC meet of “OPR pause”.
Maybank group chief economist Suhaimi Ilias, in a note today (Jan 26), said BNM stands pat amid unchanged views on growth, inflation and Ringgit.
The accompanying Monetary Policy Statement (MPS) maintained BNM views that the upside and downside risks to both growth and inflation are balanced, hence the decision to keep OPR at 3.00%.
Comparing the latest and previous MPS, BNM kept the assessment of continued global growth with “upgrades” in views on 1) E&E/tech cycle to “further signs of recovery” from “emerging signs of recovery” and 2) China’s growth to “continued improvement” from “early sign of improvement”, although the recovery will be modest due to property market weakness.
However, global growth outlook remained biased to the downside reflecting the inter-connected risk of escalations in geopolitical tensions, higher-than-expected inflation and heightened financial market volatility. These crosscurrents of global/external tailwinds and headwinds partly explained the “sideway” advanced estimate growth of +3.4% YoY in 4Q 2023 (based on Oct-Nov 2023 data/indicators) vs +3.3% YoY in 3Q 2023.
Going forward, BNM expect Malaysia’s economic growth to be firmer in 2024 on export recovery, higher tourist arrivals and resilient domestic demand mainly as employment and wage growth underpins consumer spending, as well as progress in multi-year existing and new infrastructure projects plus implementation of catalytic initiatives under master plans announced in 3Q 2023 (e.g. MADANI Economy; National Energy Transition Roadmap; National Industrial Master Plan 2030) which will support investment activities.
Domestic economic outlook is balanced between the downsides to external demand and commodity output, and the upsides from greater spillovers from E&E/tech recovery, stronger than expected tourism activity, and faster implementation of masterplans’ projects and initiatives.
Meanwhile, monthly headline inflation rate has gone sub-2% YoY since Sep 2023 (Figure 3) and core inflation has also dipped below +2% YoY in Dec 2023 but is “stickier” (Dec 2023: +1.9% YoY; Nov 2023: +2.0% YoY; 2023: +3.0% YoY; 2022: +3.0%) i.e. higher than headline inflation (Dec 2023: +1.5 YoY; Nov 2023: +1.5% YoY; 2023: +2.5% YoY; 2022: +3.3%).
BNM’s MPS expect inflation rate to remain modest in 2024, but this outlook is highly subjected to changes in domestic policy on subsidies and price controls as well as global commodity prices and financial market developments, hence the official 2024 inflation rate’s wide forecast range of 2.1%-3.6%.
On the Ringgit, BNM pointed out that recent weakness vs US Dollar is due to external factors rather than current domestic economic performance and outlook.
BNM reiterated that it will ensure sufficient liquidity to ensure the orderly functioning of the domestic foreign exchange market in view of the continued heightened volatility in the global financial and foreign exchange markets.
OPR to remain at 3.00% in 2024
BNM sees continued tight monetary policy globally near-term, but added the tightening cycle has peaked, implying interest rate cuts ahead.
Notwithstanding this, Maybank Investment Bank Berhad (Maybank IB) expects OPR to remain at 3.00% throughout 2024 given their current forecasts of pick up in GDP growth to +4.4% (2023 Advanced Estimate: +3.8%) and inflation rate to +3.0% (2023: +2.5%).
The latest 1-Year Interest Rate Swap (IRS) rate also implies market is pricing in a stable OPR this year.
