Several research firms and financial institutions have projected that Bank Negara Malaysia (BNM) will increase the overnight policy rate (OPR) once more in the Monetary Policy Committee (MPC) meeting that is happening this week.

Moody’s Analytics believes that BNM will lift the OPR by another 25 basis points (bps), bringing it from the current 2% to 2.25%. If it does, this will be the second time that the central bank is raising the OPR this year, after hiking it for the first time back in May 2022 since the OPR fell to a record low of 1.75% in 2020.

Similarly, MIDF Research also expects BNM to raise the OPR by another 25bps due to the continuous increase in core inflation, which hints at a growing domestic demand. “In addition, the upbeat momentum in distributive trade sales, dip in unemployment rate to a new pandemic low at 3.9% in April 2022, and the double-digit expansion rate of external trade provide positive signals of strong recovery in the economy,” it said.

Maybank Investment Bank, too, shares a similar opinion – and even adds that BNM is likely to increase the OPR by 100 bps between the second half of 2022 (2H22) and the first half of 2023 (1H23). Its chief economist Suhaimi Ilias said that he expects the OPR to be raised by 25bps this week, another 25bps by the fourth quarter of 2022, and a final 50bps in 1H23.

“Our estimation is every 25bps hike will basically shave real gross domestic product (GDP) growth by 0.2 percentage points spread over 12 months. And the implications of increasing the OPR include the raising of mortgage repayment by 3%,” said Suhaimi, adding that Maybank Investment Bank has also revised its inflation forecast for 2022 (from 2.7% to 3.4%) and 2023 (from 2.5% to 4.1%).

Suhaimi explained that this revision was made because Maybank Investment Bank took into account the higher prices of food items, like chicken and cooking oil. This is following the implementation of a higher ceiling price for chicken, the removal of price subsidy for bottled cooking oil, and the likelihood of a fuel subsidy review next year.

(Sources: Free Malaysia Today, Malay Mail)

• TAGS:
• Bank Negara Malaysia
• BNM
• GDP
• Gross Domestic Product
• Inflation
• Maybank Investment Bank
• MIDF Research
• Moody's Analytics
• OPR
• Overnight Policy Rate
• Suhaimi Ilias