Bank Negara lifts OPR by 25bps as expected
Monetary policy decisions depend on evolving conditions and setting will be done in a measured and gradual manner, regulator says
PETALING JAYA: Bank Negara Malaysia (BNM) yesterday increased the Overnight Policy Rate (OPR) by 25 basis points (bps) to 2.75%, marking the fourth consecutive rate increase this year.
The first increase was in May, with the central bank bumping up the OPR by 25bps from a record low of 1.75% during the Covid-19 pandemic. It again raised the benchmark rate by 25bps in July, and delivered a similar increase in September.
BNM said yesterday the Monetary Policy Committee (MPC) decided to further adjust the degree of monetary accommodation against the backdrop of continued positive growth prospects for the Malaysian economy as well as to keep inflation in check.
“The adjustment would pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of monetary policy settings that balances the risks to domestic inflation and sustainable growth,” it added.
The central bank said that at the current OPR level, the monetary policy stance remains accommodative and supportive of economic growth.
“The MPC is not on any pre-set course, which means that monetary policy decisions will continue to depend on evolving conditions and their implications on the overall outlook to domestic inflation and growth.”
BNM maintained that any adjustments to the monetary policy settings going forward would continue to be done in a measured and gradual manner.
“Ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability,” it said.
The central bank reiterated that inflation likely peaked in the third quarter of 2022 and is expected to moderate thereafter, albeit remaining elevated.
MIDF Research said the latest OPR increase is in-line with market expectations. From a medium-term perspective, policy rate normalisation is needed to avert risks that could destabilise the future economic outlook, such as persistently high inflation and a further rise in household indebtedness.
It expects there will still be rate increases, with the next one in January 2023.
“With the rising core inflation trend and stronger-than-expected domestic demand, we expect the central bank to front-load its monetary bullets to pre-pandemic levels at 3.00% by January 2023.
“However, 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,” MIDF Research said in a report.
Meanwhile, OCBC Treasury Research said BNM’s decision to raise OPR is in line with broad market expectations but diverged from its view of a pause.
“We had assumed that a relative amelioration of inflation pressure would give them more room to focus on growth risk ahead,” economist Wellian Wiranto said in a report.
Even as BNM tacitly warned of the need to manage the risk of excessive demand, OCBC sees it coming closer to the end of the tightening cycle than before.
“As much as inflation seems to weigh more than growth on the BNM’s mind now, the balance may well shift to the flip side in the coming months given the global uncertainties,” he said.
But OCBC still expects another rate hike next year to 3.0%.
“Thereafter, we think BNM will perch at that level to survey the global landscape more carefully, to assess any need to move further,” Wellian said.
Affin Hwang AM senior director of fixed income Esther Teo said that for next year, it expects BNM to normalise monetary policy by another one or two times or 25-50bps on the back of still positive economic growth prospect as well as to manage demanddriven inflationary pressures.
“We don’t expect a pivot to a looser monetary policy anytime soon. BNM could first pause its current hiking cycle to monitor the effects of the cumulative interest rate normalisation that it began since May 2022 to the economy, rather than pivoting to cutting interest rates,” she said.