Economists: BNM Likely To Hold OPR At 3% For Remainder Of 2023

Alex Cheong Pui Yin

5th May 2023 - 3 min read

Several economists and research houses have forecasted that Bank Negara Malaysia (BNM) will hold the overnight policy rate (OPR) at 3% for the remainder of 2023. This comes following the central bank’s latest decision to hike the OPR by another 25 basis points (bps) on Wednesday, during its third Monetary Policy Committee (MPC) meeting this year.

The chief economist of Bank Muamalat, Dr Mohd Afzanizam Abdul Rashid believes that the OPR hike is a “done deal” at 3%, and that it is now at a sweet spot. He explained that at the current rate – which is already within the pre-pandemic OPR range of between 3% to 3.25% – BNM will have some wiggle room to implement more monetary tightening if there is a need to respond to economic challenges in the future. At the same time, it will keep the deposit rates sufficiently high for individuals who are saving money, as well as discourage people from taking on more loans or debts.

Similarly, OCBC Treasury Research said that BNM is likely to hold the policy rate for the rest of 2023, provided Malaysia’s core inflation and financial imbalances remain relatively unchanged in the future. “The recent mix of weakening external data and easing inflation had suggested to us that BNM would not be inclined to hike further,” the research house shared in a note.

Economist of Capital Economics, Shivaan Tandon also expects BNM’s money tightening cycle to end with the latest OPR hike, as he believes Malaysia’s inflation is set to fall further, with the economy slowing down.

“Household and corporate debt ratios in Malaysia are among the highest in the region, making the economy especially vulnerable to high interest rates. Malaysia is also heavily exposed to weak external demand and particularly to the ongoing downturn in the global electronics sector, [with] electronics accounting for Malaysia’s largest goods exports,” said Tandon, adding that BNM may be “too optimistic” about the economic outlook.

Experts from RHB Research, Chin Yee Sian and Wong Xian Yong also echoed similar opinions regarding the OPR – both of whom believe that the OPR could be raised to a maximum of 3.25% in 2023, although it is more likely to be kept at 3%. They further said that while domestic consumer demand is expected to drive the economy, export growth and the manufacturing sector may pull the economy down by a little. This is in line with a more subdued global trade activity.

Meanwhile, MIDF Research believes that BNM will now shift to a wait-and-see approach before deciding on future hikes. In particular, it will monitor developments by other central banks, especially those of key economies around the world.

On Wednesday, BNM surprised economists with its decision to increase the OPR from 2.75% to 3%, after pausing its rate hike cycle in the last two MPC meetings in January and March 2023. Many experts had forecasted that BNM will maintain the rate at 2.75% this time round. However, the unexpected decision was generally viewed as a welcome one, with most considering the move as an indication of Malaysia’s economic resilience.

(Source: The Edge Markets)

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Alex Cheong Pui Yin

Previously covered recruitment-related stories and had a short stint as a copywriter for the property industry. She subsequently developed an interest in investment and robo-advisors.

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