KUALA LUMPUR - Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 3.0 per cent throughout 2024, on the back of stable domestic headline and core inflation figures, and solid gross domestic product (GDP) growth outlook of around 4.5-5.0 per cent, says Kenanga Investment Bank Bhd.
The investment bank said although there are concerns about the government’s subsidy rationalisation plan and the increased service tax (from 6.0 per cent to 8.0 per cent) impacting inflation, it believes that the effect would be relatively limited.
"This view is reflected in our inflation forecast of 2.7 per cent for 2024, and this would still yield a positive real interest rate of about 0.3 per cent, assuming the OPR remains unchanged at 3.0 per cent for the rest of the year," it said in a note today.
As for the ringgit’s outlook, it forecasts the local note to strengthen towards the 4.42 level against the US dollar by end-2024, as it believes that the United States Federal Reserve (Fed) is likely to begin cutting the interest rates from June onwards.
"However, maintaining investors’ confidence in the country's fiscal policy direction remains vital to attract investments into Malaysia," it said.
Similarly, BMI, a Fitch Solutions company, also expects the central bank to hold the OPR at 3.0 per cent throughout 2024
"The reason why we still think BNM will continue to hold (the OPR) is policymakers’ concern about the value of the ringgit, which has slipped more than 5.0 per cent against the US dollar over the past year," it said in a separate note.
Moreover, BMI believes that inflation should no longer be a concern for the country moving forward.
"Our oil and gas team still forecasts an about 5.0 per cent increase in average crude oil prices in 2024, which is consistent with headline inflation which stayed well below 2.0 per cent (for the past few months)," it said.
On the ringgit outlook, BMI said that the Fed is likely to ease its interest rate in the second half of 2024, and the yield differentials should gradually favour the ringgit over the coming months and prop its value.
"We also expect relatively robust GDP growth of 4.4 per cent for 2024, a marked improvement from 3.7 per cent in 2023, which means the central bank will not be in a hurry to cut to support the economy,' it added. - BERNAMA