ANALYSTS MIXED ON RATE HIKE NEXT YEAR
AmInvestment expects OPR to rise in second half but Kenanga Research and HLIB Research see no increase
RESEARCH houses are mixed on whether Malaysia will raise its key interest rate next year.
Kenanga Research and Hong Leong Investment Bank (HLIB) Research do not expect a rate increase but AmInvestment Research thinks differently.
AmInvestment said Bank Negara Malaysia would likely raise the Overnight Policy Rate (OPR) in the second half of next year.
Bank Negara left the OPR at 3.25 per cent at its Monetary Policy Committee’s sixth and last meeting for the year on Thursday to support economic growth while maintaining inflationary pressure.
Analysts said the central bank’s tone was “neutral”, with growth expected to remain steady, supported by private activity although risks from trade tensions, volatile financial markets and the United States normalisation policy.
Kenanga Research expects no changes to Bank Negara’s monetary stance next year, barring an unforeseen external shock.
“We stick to Bank Negara’s perennial stance of supporting growth and price stability over the defence of currency. Whether the US Federal Reserve sticks to its rate normalisation plan of at least three more rate hikes next year, it would not have any effect on Bank Negara’s decision in a major way for now.”
HLIB Research said the central bank was comfortable in maintaining the OPR at its current level for now.
“Our base case is for Bank Negara to keep OPR on hold next year unless the external sector deteriorates significantly with negative repercussions on the domestic economy,” it added.
AmInvestment said room for a rate hike would likely be evident in the second half of next year, which will be data-driven.
“We maintain our view that the OPR will stay unchanged in the first half of next year although the headline inflation is expected to stay low this year and pick up next year from projected higher oil prices, the floating of domestic fuel prices and impact of the consumption tax policy,” it said.
“Should potential inflationary pressure continue to trend upwards, driven by stronger underlying inflation, we foresee a 25 basis points hike in the second half of next year. We have been playing down on the possibility of a rate cut next year and still maintain our view,” said AmInvestment.