Analysts Predict OPR To Hit 3.00% In 2023
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(Image: Reuters)

Several research and financial institutions have predicted that Bank Negara Malaysia (BNM) will gradually raise the overnight policy rate (OPR) to 3.00% by 2023, thereby normalising the policy rate. 

According to Kenanga Investment Bank Bhd, further OPR hikes are expected given the increasing inflationary pressures and sustained economic recovery in the country. “This is also in tandem with the global central bank’s monetary policy tightening cycle predominantly to combat rising inflation,” it further shared.

However, Kenanga Investment Bank believes that BNM will not carry out an aggressive rate increase, such as hiking the OPR by 50 basis points (bps). This is unless the inflation rate rises above the central bank’s projection, driven by stronger-than-expected domestic demand. 

(Image: The Edge Markets)

“Likewise, we retain our forecast that BNM will gradually raise the OPR by 25 bps each in the September and November MPC (Monetary Policy Committee) meetings, with the final hike in the first quarter of 2023. Therefore, the policy rate is expected to settle at 2.75% by the end of this year, and 3.00% for 2023,” Kenanga Investment Bank further said.

Meanwhile, CGS-CIMB Securities Sdn Bhd commented that BNM will likely monitor the country’s economic growth before making further decisions on future OPR increases, especially if domestic demand booms amidst the subsidies provided by the government. “In that eventuality, a third rate hike this year could even be on the cards. Next year, we price in a further 50 bps in rate hikes, putting the end-2023 OPR at 3.00%,” it remarked.

(Image: The Malaysian Reserve)

Finally, AmBank Research expects BNM to adopt a more aggressive stance in the process of raising the OPR to tame inflation. This is also to support the weakening ringgit against the US dollar and other currencies.

“We gather that a 50 bps hike one-off seems highly unlikely. We are of the view that (the) OPR will end at 2.50%-2.75% in 2022, suggesting one to two more rate hikes, with another two hikes in 2023 to 3.00%-3.25%,” AmBank Research added.  

Two days ago, BNM raised Malaysia’s OPR by another 25 basis points, bringing it from 2.00% to 2.25%. This is the second time that the central bank has raised the OPR this year, after having increased it once in May 2022 from the record low of 1.75%.

(Sources: The Malaysian Reserve, The Borneo Post)

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