KUALA LUMPUR: The decision to stay pat on its key interest rate suggests that Bank Negara Malaysia is confident about the stability of the economy compared to the one blighted by political uncertainties in the last two years, economists said.
Economists contacted by NST Business expect the OPR to remain at the current level for awhile longer, although the central bank might raise the rate by 25 basis points (bps) later in the year to rein in inflation.
Bank Negara today kept the Overnight Policy Rate (OPR) unchanged at 2.75 per cent as it did in January.
This is despite having to grapple with the implications of a likely 50-bps hike in US interest rates, thanks to the Federal Reserve chair Jerome Powell's hawkish comments to the US Congress on Tuesday.
Malaysia University of Science and Technology economist Dr Geoffrey Williams said inflation was expected to fall in the coming months supported by falling oil prices.
The economy itself was forecast to grow at a sustainable rate close to trend and the financial sector was strong, he added.
"The government budget is clear now and will support growth against external risks. So based on the Bank Negara mandate, there is no case to change interest rates. There will be no cuts in the upcoming meeting, OPR will be stable for the rest of the year," Willaims said.
Bank Muamalat Malaysia Bhd head of economics and market analysis Mohd Afzanizam Abdul Rashid said the decision to maintain the OPR was within most economists' expectations.
Afzanizam described the decision as positive and did not expect Bank Negara to start cutting the rates down soon.
"At the most, we could expect the OPR to remain steady in the near term. Otherwise, the OPR is likely to go slightly higher than the prevailing level. Typically, the OPR will linger around 3.00 per cent to 3.25 per cent. So we can expect another 25-bps hike in the policy rate this year," he said.
Universiti Putra Malaysia, school of business and economics senior lecturer Dr Mohammad Khair Afham Mohd Senan said further cut of OPR would not be imminent in the near future.
"Lowering interest rate will push inflation higher. (But) Bank Negara's decision to maintain the interest rate is appropriate for the time being, given the economic condition," Khair added.
Putra Business School economic analyst Associate Prof Dr Ahmed Razman Abdul Latiff expects the OPR to remain in the near term and at most to be at 3.00 per cent for this year.
"The decision to maintain the OPR is mainly due to the latest economic indicators for Malaysia such as GDP annual growth for 2023 to remain at 4.5 per cent and annual inflation rate to be 2.8-3.8 per cent.
"This will not necessitate a further hike due to low and manageable numbers, even when speculation has been rife in the US that Federal Reserve will be further increasing the interest rate by 50 bps," Ahmed Razman said.
In its statement, Bank Negara said at the current OPR level, the stance of monetary policy remained accommodative and supportive of economic growth.
There were some positive developments with the reopening of China's economy and better-than-expected growth outturns in major economies, supported by resilient domestic demand.
Nevertheless, it said the global economy continues to be weighed down by elevated cost pressures and higher interest rates.
"Headline inflation moderated slightly from high levels in recent months, but core inflation remained above historical averages. Some central banks are expected to continue raising interest rates to manage inflationary pressures. This will continue to pose headwinds to the global growth outlook."
Source: https://www.nst.com.my/business/2023/03/887701/bank-negara-stays-pat-opr-hike-least-imminent-2023-economists