‘BANK NEGARA LIKELY TO RAISE OPR BY 25 BASIS POINTS TODAY’

KUALA LUMPUR: Bank Negara Malaysia is expected to announce a hike in the Overnight Policy Rate (OPR) this year by 25 basis points (bps) to 3.25 per cent to tame inflation, said economists.

The central bank’s Monetary Policy Committee (MPC) will hold its first meeting for the year today. The last OPR hike was in July 2014.

The OPR, which serves as a benchmark for banks to set their interest rates, has remained at 3.0 per cent since the last downward revision on July 13 2016.

Bloomberg economist Tamara Mast Henderson said BNM had warned of a tighter monetary policy ahead, although the timing of an OPR hike was still uncertain.

“The outlook for 2018 remains relatively robust. Household spending will be supported by new government measures to boost incomes and spending power. For (Malaysia), the sharp increase in oil prices should support export growth through at least 1H, if not longer. It also spells higher demand-pull, in addition to cost-push, price pressures,” she added.

Henderson said with the upcoming 14th general election and oil prices and trade affected by lower growth in China, “any tightening would be limited in scope — likely one and done”.

RAM Ratings head of research Kristina Fong, meanwhile, estimates full-year inflation for last year at 3.9 per cent, while easing to 2.5 per cent this year.

“We maintain our stance that there is room for tighter monetary policy, with a hike of 25 bps in the Overnight Policy Rate this year. This will be on the back of stronger demand-pull factors amid more sustainable growth. We expect the OPR to end the year at 3.25 per cent,” she said.

AmInvestment Bank Research, in a report this week, said the likelihood of an OPR hike at the first meeting of the year is supported by the prolonged period of negative interest rates, stronger fundamentals and healthy liquidity.

The extent of benefits to earnings would depend on the respective banks’ percentage of floating rate loans, the ratio of domestic to total loans, and the timing of the rate hike relative to the banks’ financial year end.