Several economists have predicted a further increase in the overnight policy rate (OPR) in the second half of this year, subject to improvements in the economic growth, inflationary rate, and macroeconomic conditions. This came following the decision by Bank Negara Malaysia (BNM) to increase the OPR by 25 basis points, raising it from 1.75% to 2.00%.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that another increase of 25 basis points may be expected as BNM will exercise extreme caution in tightening its monetary policy. Referring to the latest statement by the central bank, he stated that BNM seemed comfortable enough with the current economic growth outlook to do so.

“Although the central bank continues to acknowledge the downside risks, the excessive monetary policy accommodation would need to be removed, which otherwise can cause other problems such as overheating the economy, excessive risk-taking due to low deposit rates, as well high-level of indebtedness among households and businesses,” Dr Mohd Afzanizam further commented.

OCBC Bank economist Wellian Wiranto also predicts more OPR hikes in the near future, but in “a measured and gradual manner”. He expects the next increase to come this September, noting that the interval in between will allow BNM to assess possible risks – including inflation – before making its decision.

“The reality of higher inflation is something that BNM has to countenance on the domestic front too, noting how ‘the underlying inflation, as measured by core inflation, is expected to trend higher at between 2% and 3% in 2022’ due to economic momentum and ‘lingering cost pressures’,” Wellian said. He also added that BNM will not hastily raise the OPR, given the unpredictable growth trajectories globally.

In addition, MIDF Amanah Investment Bank (MIDF Amanah) also predicts another OPR increase by 25 basis points in the third quarter of this year, bringing the current OPR of 2.00% to 2.25%. “With the rate of inflation hovering within BNM’s forecast, we opine that there is less pressure for the central bank to adopt an aggressive policy tightening,” it added. 

Malaysia’s OPR was slashed by a total of 125 basis points since the start of the Covid-19 pandemic in 2020. It originally stood at 3.00%, and was subsequently reduced to 2.75% in January 2020, 2.50% in March 2020, 2.00% in May 2020, and finally, 1.75% in July 2020. The rate was then held at the historical low rate until yesterday, when it was raised for the first time after two years. 

(Source: The Star)

• TAGS:
• Bank Islam
• Bank Negara Malaysia
• BNM
• Dr Mohd Afzanizam Abdul Rashid
• MIDF Amanah Investment Bank Berhad
• OCBC Bank
• OPR
• Overnight Policy Rate
• Wellian Wiranto