Analysis: OPR likely to stay unchanged throughout 2024
KUCHING: Analysts across the board believe that the Bank Negara Malaysia (BNM) will retain the overnight policy rate (OPR) at 3.00 per cent throughout 2024 to support Malaysia’s economy amidst the current challenging macro environment.
In its third Monetary Policy Committee (MPC) meeting, BNM opted to keep its key interest rate unchanged at 3.00 per cent and it said the current monetary policy stance continues to provide support to the economy.
“The focus of BNM’s monetary policy setting is to ensure a sustainable growth momentum in Malaysia’s economy,” MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) commented in a recent report.
However, it pointed out that while it expected external trade to recover, external environment stays challenging in 2024 amid ongoing geopolitical tensions and potential slower global growth.
On the domestic front, it noted that the domestic economic outlook is predicted to remain vigilant and resilient underpinned by steady domestic demand.
“However, we believe the stabilisation of core inflation and challenging external environment may influence BNM to keep OPR at current levels throughout 2024.
“The decision will be subjected to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions, particularly a continued recovery in the labour market and growing domestic demand.
“From a medium-term perspective, the post-pandemic policy rate normalisation provides room for BNM to better manage risks that could destabilise the future economic outlook such as persistently high inflation and a further rise in household indebtedness,” it said.
Meanwhile, Kenanga Investment Bank Bhd’s research team (Kenanga Research) also believe BNM will maintain its policy rate at 3.00 per cent for the rest of the year to support domestic growth while keeping inflation in check.
“This is because the upside risk on the inflation outlook remains tilted to the upside, particularly due to the potential impact of the targeted subsidy mechanism, which could increase price pressure if the government decides to float the fuel price at market rates.
“Additionally, the announcement of a wage hike for government servants in December, along with the new EPF’s Account 3 initiatives, is expected to support strong domestic demand in the coming months,” it said.
However, it cautioned that growth concerns persist as growth remains vulnerable to external risks, including heightened geopolitical tensions, China’s fragile recovery, and a slower technology upcycle.
“Additionally, a potentially slowdown in the US economy, due to prolonged high interest rates, could threaten the domestic growth outlook.
“With that said, BNM may want to prioritise growth in line with its target of 4.0 to 5.0 per cent.
“We expect BNM to maintain its neutral stance for an extended period to support sustainable growth while monitoring potential risks to inflation and growth,” it added.