More OPR Hikes To Come Next Year As November Inflation Remains Elevated
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(Image: Malay Mail/Yusof Mat Isa)

Bank Negara Malaysia (BNM) is expected to raise the overnight policy rate (OPR) even more during its upcoming Monetary Policy Committee (MPC) meetings. This is as Malaysia’s core inflation remains elevated, reaching a new peak of 4.2% year-on-year (yoy) in November 2022.

UOB Global Economics and Market Research explained that with headline inflation remaining elevated and core inflation showing no signs of easing – especially during the year-end holiday period – Malaysia’s OPR could see an increase of 50 basis points (bps) in the first quarter of 2023 itself.

“We expect the next 25bps rate hike at the MPC on 18-19 January, followed by another 25bps hike on 8-9 March,” said UOB Research economists Julia Goh and Loke Siew Ting, adding that the rate should remain unchanged at that level thereafter for the rest of 2023.

Both economists also predicted that the inflation of 2022 will be recorded at 3.5% – as opposed to the Ministry of Finance’s (MOF) estimated 3.3% – and 2.8% for 2023, in comparison to MOF’s estimate of 2.8% to 3.3%. They highlighted, however, that their forecasts do not take into account the removal of subsidies.

Julia Goh, from UOB Research

“As the government prioritises measures to relieve the cost of living while electricity tariffs will remain unchanged for households and small businesses until mid-2023, we think the government is mindful of the upside risks to inflation, particularly if blanket subsidies are removed. Thus we have not imputed any removal of subsidies into our inflation forecasts for now,” UOB Research further explained.

Similarly, MIDF Research also expects the MPC to bring the OPR up by another 25bps in its upcoming meeting in January 2023. Additionally, the new government will likely keep the current fuel subsidy mechanism for another year, at least, it said.

As for RHB Investment Bank Research, it expects BNM to increase the OPR between a range of 25bps to 75bps throughout 2023, settling somewhere between 3% to 3.5%. It also maintains its headline inflation forecast at 3.4% y.o.y for 2022, with the consumer price index (CPI) softening slightly to 3% for 2023.

In 2022, Malaysia saw its OPR hiked up by a total of four times at 25bps each – in May, July, September, and November 2022. Ultimately, the four consecutive hikes raised the OPR from its record low of 1.75% to 2.75%. Many other economists have also previously stated that they believe more OPR hikes are likely, until it reaches a neutral rate of 3.25% to 5.00%.

(Source: The Edge Markets)

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