Another OPR hike is imminent, say economists

KUALA LUMPUR - The door for a further hike in the Overnight Policy Rate (OPR) of another 25 basis points (bps) in the near term is still open in the second half of this year, subject to the stability of economic growth, pace of inflationary rate and improvements in the macroeconomic conditions.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid noted that another 25-bps hike is quite likely as the central bank would need to be extremely careful in removing the monetary policy accommodation.

"Judging from the latest statement from the Monetary Policy Committee (MPC), it appears that BNM is quite comfortable with the prevailing economic growth trajectory.

"Although the central bank continues to acknowledge the downside risks, the excessive monetary policy accommodation would need to be removed, which otherwise can cause other problems such as overheating the economy, excessive risk-taking due to low deposit rates, as well high-level of indebtedness among households and businesses,” he told Bernama.

Bank Negara Malaysia (BNM) raised its OPR by 25 bps to 2.0 per cent on Wednesday, in a move that surprised market consensus.

Malaysia’s policy rate has been anchored at 1.75 per cent since July 2020, having reached that historically low level after the central bank slashed it by 125 bps since the onset of the Covid-19 pandemic at the start of that year.

OCBC Bank economist Wellian Wiranto said more interest rate hikes are expected to come in "a measured and gradual manner”.

OCBC Bank’s central scenario is for the next hike to come in September, allowing BNM the space to gauge whether upside risk to inflation or downside risk to growth will be the greater foe before deciding to hike the rate further from there.

"The reality of higher inflation is something that BNM has to countenance on the domestic front too, noting how 'the underlying inflation, as measured by core inflation, is expected to trend higher at between 2.0 per cent and 3.0 per cent in 2022' due to economic momentum and 'lingering cost pressures',” said Wellian.

He added that, given the unpredictability of growth trajectories globally, with the statement pointing out risks of "further escalation of geopolitical conflicts, worsening supply chain disruptions and adverse developments surrounding Covid-19” for instance, this is not a central bank that will act in haste.

Meanwhile, MIDF Amanah Investment Bank (MIDF Amanah) believes the focus of BNM’s monetary policy setting is to ensure a sustainable recovery in the local economy.

"With the rate of inflation hovering within BNM’s forecast, we opine that there is less pressure for the central bank to adopt aggressive policy tightening. At this point, we expect another 25-basis points rate hike to 2.25 per cent in the third quarter of 2022,” it added. - BERNAMA