KUALA LUMPUR - Bank Negara Malaysia's (BNM) Monetary Policy Committee (MPC) is expected to raise the Overnight Policy Rate (OPR) by another 25 basis points (bps) in its next meeting in January 2023.
Ambank Research in its Economic Highlight report said the increase would push the OPR level to 3.00 per cent, bringing the interest rate to the pre-pandemic level.
"In line with our expectation and consensus, BNM increased the OPR by 25 bps to 2.75 per cent.
"This would be the fourth OPR hike this year, a cumulative of 100 bps rate hike throughout the year," it commented following the OPR hike announced by BNM yesterday.
The OPR hike was due to inflationary concerns coming from the domestic recovery itself, the research firm said.
The latest core inflation stood at 4.0 per cent in September [2.7 per cent year-to-date (YTD) average], which is in the upper bound of BNM’s forecast of 2.0 - 3.0 per cent.
From the supply side, it said global supply-chain pressure has cooled since April this year, thus pushing down some pressure from input cost.
However, the weakening of the ringgit (13.9 per cent YTD) was the reason for inflation to remain elevated.
Following the announcement, Ambank Research said the ringgit depreciated by 0.17 per cent to 4.7460, relative to yesterday’s closing rate.
"External headwinds plus domestic noises remain major drawback to the ringgit.
"Also, the interest rates differentials between the US Federal Reserve (Fed) funds rate and the OPR remain wide at 100 bps, favouring the US dollar.
"We project the US dollar-ringgit in the fourth quarter (Q4) of 2022 would be at 4.70 against the dollar," it said.
Meanwhile, Kenanga Research, which maintained the "Overweight" call on the banking sector, expected one remaining 25 bps hike in Q1 of calendar year (CY) 2023 to 3.00 per cent.
It said despite having eluded inflationary pressures which may bring rise to delinquency risks, it believed the banking sector’s asset quality concerns are well managed as repayment trends are resuming healthily from recovering economic activity as well as higher income and employment.
"Provisions are still tightly managed within banks and heavy overlays are still in place to be utilised should a shift in macros make a drastic turn.
"In this rising rate environment, demand for loans, particularly in the retail front, may subside but this could be cushioned by higher interest margins, for which we anticipate one further 25 bps hike to take place in Q1 CY2023," it said.
For Hong Leong Investment Bank (HLIB), it expects BNM to raise the OPR by 50 bps by the first half (1H) of 2023 to reach 3.25 per cent.
It noted that BNM's further tightening of its monetary policy was due to Malaysia’s continued positive growth prospects.
"The MPC reiterated that they are not on any pre-set course and that future decisions will continue to be dependent on evolving conditions and their implications on inflation and growth.
"However, it did note that this adjustment would also pre-emptively manage the risk of excessive demand on price pressures, which seems to suggest their concern on possibly higher inflation in 2023 following high cost pressures and possible changes to domestic policy measures," said HLIB. - BERNAMA
Ambank Research in its Economic Highlight report said the increase would push the OPR level to 3.00 per cent, bringing the interest rate to the pre-pandemic level.
"In line with our expectation and consensus, BNM increased the OPR by 25 bps to 2.75 per cent.
"This would be the fourth OPR hike this year, a cumulative of 100 bps rate hike throughout the year," it commented following the OPR hike announced by BNM yesterday.
The OPR hike was due to inflationary concerns coming from the domestic recovery itself, the research firm said.
The latest core inflation stood at 4.0 per cent in September [2.7 per cent year-to-date (YTD) average], which is in the upper bound of BNM’s forecast of 2.0 - 3.0 per cent.
From the supply side, it said global supply-chain pressure has cooled since April this year, thus pushing down some pressure from input cost.
However, the weakening of the ringgit (13.9 per cent YTD) was the reason for inflation to remain elevated.
Following the announcement, Ambank Research said the ringgit depreciated by 0.17 per cent to 4.7460, relative to yesterday’s closing rate.
"External headwinds plus domestic noises remain major drawback to the ringgit.
"Also, the interest rates differentials between the US Federal Reserve (Fed) funds rate and the OPR remain wide at 100 bps, favouring the US dollar.
"We project the US dollar-ringgit in the fourth quarter (Q4) of 2022 would be at 4.70 against the dollar," it said.
Meanwhile, Kenanga Research, which maintained the "Overweight" call on the banking sector, expected one remaining 25 bps hike in Q1 of calendar year (CY) 2023 to 3.00 per cent.
It said despite having eluded inflationary pressures which may bring rise to delinquency risks, it believed the banking sector’s asset quality concerns are well managed as repayment trends are resuming healthily from recovering economic activity as well as higher income and employment.
"Provisions are still tightly managed within banks and heavy overlays are still in place to be utilised should a shift in macros make a drastic turn.
"In this rising rate environment, demand for loans, particularly in the retail front, may subside but this could be cushioned by higher interest margins, for which we anticipate one further 25 bps hike to take place in Q1 CY2023," it said.
For Hong Leong Investment Bank (HLIB), it expects BNM to raise the OPR by 50 bps by the first half (1H) of 2023 to reach 3.25 per cent.
It noted that BNM's further tightening of its monetary policy was due to Malaysia’s continued positive growth prospects.
"The MPC reiterated that they are not on any pre-set course and that future decisions will continue to be dependent on evolving conditions and their implications on inflation and growth.
"However, it did note that this adjustment would also pre-emptively manage the risk of excessive demand on price pressures, which seems to suggest their concern on possibly higher inflation in 2023 following high cost pressures and possible changes to domestic policy measures," said HLIB. - BERNAMA