Bank Islam still sees 25bps OPR hike in H2’22
KUALA LUMPUR: Bank Islam Malaysia Bhd has maintained its call for an increase of 25 basis points in Bank Negara Malaysia’s (BNM) overnight policy rate (OPR) in the second half of 2022 and the US dollar/ringgit to end the year at RM4.15.
In its economic research note yesterday, the bank said it believes BNM will assess the Malaysian economy on its own merit to arrive at the appropriate level for the OPR.
“In the past, we have seen the difference between OPR and the federal funds rate (FFR) at the lowest level of -175 basis points from September 2006 to August 2007. This indicates that any move in FFR does not necessarily change the level of OPR in an instant,” it added.
As for US dollar/ringgit, Bank Islam believes it might linger from RM4.30 to RM4.34 as there is better clarity in the US Federal Reserve’s (Fed) monetary policy direction.
On Wednesday, the Fed raised interest rates by a half-percentage point to get a handle on the worst inflation America has seen in 40 years. The Federal Open Market Committee (FOMC) during its meeting on May 3 and 4 decided unanimously to increase the FFR by 50 basis points, bringing the target interest rate to 0.75-1.0% from 0.25-0.50%.
In addition, the size of the Fed’s balance sheet will be reduced by US$47.5 billion (RM206.6 billion) a month for the next three months.
Bank Islam said the latest FOMC meeting has clearly set the path for the normalisation of the monetary policy stance from one that is highly accommodative to a more restrictive state that corresponds with the pace of economic recovery.
The US labour market has been performing well with the jobless rate significantly reduced to 3.6% as at March 2022 from 14.7% in April 2020.
Similarly, the US housing market has been on full throttle with the S&P CaseSchiller Home Price Index for 20 major cities rising 20.2% as of February this year as massive liquidity injection in the past has found its way in the real estate market.
“As such, the FFR is likely to hit between 2.50% and 3.0% this year to ensure that the monetary policy will be in restrictive zone,” Bank Islam said.