kuala lumpur: BMI, a Fitch Solutions company, expects Bank Negara Malaysia (BNM) to maintain its overnight policy rate (OPR) at 3.0% until the end of 2024.
The report noted that the central bank kept the OPR unchanged at 3.0% for the fifth consecutive meeting on March 7, in line with consensus and BMI expectations.
The research firm said that apart from the central bank’s euphemistic mention of “undervalued” currencies, which was noticeably absent from its previous policy statement, little else had changed, particularly with regard to forward guidance. Stated.
In a note today, BMI said there are two reasons supporting its view that BNM will leave interest rates unchanged at its next meeting on May 9, 2024.
First, the current trajectory of inflation is not a threat to central banks’ inflation targets.
“Wage growth in the service sector has been on a sharp downward trend, peaking at 9.5% year-on-year in the second quarter of 2022, and most recently falling to around 3% in the fourth quarter.”2023 Year.
“The data further suggests that services inflation, which makes up more than 50% of the basket, will stabilize at around 2% over the next few quarters, consistent with our view that headline inflation will average 2.0% in 2024. Suggesting.” It was shared.
Second, he said the ringgit is under considerable pressure, having depreciated by 5.1% against the US dollar over the past year.
“Although the ringgit has gradually recovered in recent weeks, the ringgit’s year-to-date performance continues to lag behind other emerging market economies. He has repeatedly stated that he is cautious about easing monetary policy for fear of destabilizing the currency.
“Central banks are unanimous in this view and expect the global monetary policy stance to “continue to tighten” in the short term. “This is likely to be the case, and yield differentials will gradually shift in favor of the ringgit in the coming months,” BMI said.
The research institute said that not only was BNM prone to long periods of inaction, but its policy rate was 3%, consistent with pre-pandemic levels, suggesting that policy was not as tight as in other countries. Looking.
“Furthermore, we expect underlying price pressures to ease through 2024, with average prices averaging 2% in 2024, down from 2.5% in 2023.
“Our oil and gas team projects average oil prices to rise 5% in 2024, consistent with headline inflation well below 2%. suggests that this does not pose a concern for BNM for the remainder of this year.”
On a different note, BMI said it expects Malaysia’s growth to remain strong in 2024.
According to the latest national accounts data, the economy contracted by a seasonally adjusted 2.1% quarter-on-quarter in the fourth quarter of 2023, which corresponds to a year-on-year growth rate of 3%.
“This results in full-year growth of 3.7% in 2023, which fell short of our forecast of 3.9%.
“Looking ahead, as the economic outlook improves, we expect growth to accelerate to 4.4% in 2024, and central banks will not act in the event of a negative shock to the economy. We want to preserve policy space.”
However, he said risks to the interest rate outlook were skewed to the upside.
“The domestic inflation outlook remains largely dependent on the government’s plans for subsidies this year.
“A decline would mean price pressures would pick up again. On the other hand, if the ringgit faces further downward pressure, it could prompt BNM to raise rates to maintain its real interest rate differential with the US.” added.
