“We are maintaining our view that Bank Negara will likely increase its Overnight Policy Rate ... to 3.25 per cent in the second half of next year.”

KUALA LUMPUR: Research houses expect Bank Negara Malaysia to hike the Overnight Policy Rate (OPR) as early as January, following the central bank’s signal in its monetary policy statement.

The central bank’s decision to stand pat on Thursday was in keeping with market expectations but they were caught by surprise by the “hawkish tilt” in the forward guidance in the statement.

The first monetary policy statement will be issued on January 19.

DBS Bank said while the inclusion of the forward guidance might suggest a policy move as early as January, much would also depend on the inflation readings in the coming two months.

“Consideration must also be given to the upcoming general election.”

Bank Negara, it added, also had more than just the OPR in its policy tool bag. “It could well raise the Statutory Reserve Requirement ratio (SRR) before executing a rate hike per se.”

The central bank had reduced the SRR by 50 basis points (bps) to 3.50 per cent in February before officially lowering the OPR by 25bps in July.

The research house expects the SRR to be raised by 50bps before two 25bps rate hikes each in the third quarter and fourth quarters of next year, which will bring the OPR to 3.50 per cent by year-end.

AffinHwang Capital Research said the rationale for the rate rise, if it materialises, would be to prevent the economy from exceeding its potential output level, which would translate into higher inflationary pressure.

“We are maintaining our view that Bank Negara will likely increase its OPR by 25 basis points to 3.25 per cent in the second half of next year, on expectations that the current strong economic momentum would continue on a favourable global economic environment.”

However, it argued that any increase would be at a measured pace, and the magnitude of increase would be gradual and dependent on macro growth and consumer price index data, also relying on the developments in the United States monetary policy, and direction of Federal Reserve rate and reduction in the its balance sheet.

BMI Research, which said the central bank had opened the door to monetary tightening, is forecasting a quarter basis point hike next year on the back of an improving economic outlook and pre-empting rising inflation.

“The risks to our interest rate view are firmly to the upside.”

Bank Negara could hike rates if growth came in stronger than expected and inflation remained persistently high due to higher food prices and a rapid acceleration in credit growth.

“A more aggressive rate hiking cycle by the Fed could see Bank Negara hiking rates to prevent the currency from selling off excessively as a result of capital outflows.”

AmBank said the central bank’s hawkish tone followed that of the Bank of Korea and the Philippines central bank, which also debated the needed degree of accommodation.

It also supported the view for a 25 to 50bps hike next year. Rupa Damodaran