HSBC expects OPR to touch 3.5% by 1H23

KUALA LUMPUR: HSBC Global Research foresees Bank Negara raising the overnight policy rate (OPR) up to 3.50%, as it continues to tighten the monetary policy.

“We expect another 25 basis points (bps) in the November 2022 meeting, taking the OPR to 2.75% by end-2022.

“We also expect three additional rate hikes in the first half of 2023, each at 25 bps, bringing the OPR to its historic high of 3.50%,” it said.

In its Asian Economics Quarterly research report, HSBC Global Research said Bank Negara has struck a balanced tone in its economic assessment, with an optimistic view on its recovery pace but a cautious attitude toward rising inflation.

“Bank Negara has been providing steady guidance that it would continue to normalise its monetary policy in a measured and gradual manner, which we interpret as 25-bp rate hikes each time,” it said.

In addition, the central bank added new language to its forward guidance that “the Monetary Policy Committee (MPC) is not on any pre-set course and will continue to assess evolving conditions”, suggesting a data-dependent approach, the report noted.

“It will seek indicators on when inflation is likely to peak and growth is expected to moderate to determine when to stop in the current tightening cycle, and at what policy rate level.

“We believe all signs are pointing to continued tightening by Bank Negara,” said HSBC Global Research.

On the economy, it said Malaysia’s domestic growth engine is steaming ahead as the economy normalises and the labour market continues to tighten.

However, HSBC Global Research cautioned that as trade headwinds loom and domestic tailwinds gradually fade – while the domestic recovery will lead to growth in 2022 – it is likely to moderate going into 2023. — Bernama