Bank Negara seen hiking OPR in July

KUALA LUMPUR: Bank Negara Malaysia is not expected to raise its key interest rate until July, the earliest despite the US Federal Reserve increasing its policy rate, some economists said.

They think that Bank Negara would keep its Overnight Policy Rate (OPR) intact at 2.75 per cent at its Monetary Policy Committee meeting in early May before making a 25 basis point (bps) hike in the second half of the year.

After May, the next MPC meeting will be held in early July.

The Fed yesterday raised its federal fund rate by 25bps to 4.75-5.00 per cent, the highest level since September 2007.

Bank Muamalat Malaysia Bhd head of economics and market analysis Mohd Afzanizam Abdul Rashid said Bank Negara was “very independent” in its economic assessment and monetary policy decision.

Bank Muamalat, he said, was still pinning its hope of a 25 bps-hike in OPR in the second half of 2023.

“While the Fed is expected to be more dovish going forward, the same cannot be said about Bank Negara. This is given the fact that the Malaysian economy was growing at a robust rate last year at 8.7 per cent.

“We could see the total property transaction was growing at a fast clip of 23.6 per cent in 2022 versus its 30-year compound average growth rate (CAGR) of 7.0 per cent per annum,” Afzanizam said.

He added that the normalisation of economic activities indicated that the domestic demand continued to be robust.

The same can be said for automotive sales which increased 39 per cent in February, Afzanizam said.

Economist Datuk Jalilah Baba said the Fed move would affect Bank Negara’s policy rate.

Jalilah said the interest rate hike would result in borrowing becoming more expensive to private companies and individuals.

“This will result in less spending by households and companies too, but it might also push down prices on goods and services. At the same time, this situation may affect businesses in a negative way since spending will be restricted,” she said.

Putra Business School economic analyst Associate Prof Dr Ahmed Razman Abdul Latiff said Bank Negara would be pressured to reduce the rate gap between Malaysia and US.

The gap, which widened to 2.00 percentage points, would affect the decision of investors to invest in Malaysia as they would be more keen to invest in the US, he added.

Ahmed Razman said the Fed hike would result in the US economic activity slowdown. This would negatively affect the Malaysian economy caused by the decline of demands such exports to the US.

He expects a 25 bps increase in OPR in May, subject to the inflation rate movement in the next few months.

Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said Bank Negara had taken a pause on its rate hike in its last MPC meeting in March, but its statement clearly indicated that it would remain vigilant.

“That vigilance clearly meant a preparedness to adjust according to rate hikes by the Fed. I would expect Bank Negara to review its policy and it would probably want to raise rates at the next MPC meeting, to stem the outflow of capital.

“While a rise in the interest rate would bring some stability to the ringgit, I am not sure if we could expect to see significant changes to Malaysia’s inflation rate,” Nambiar added.

Kenanga Research said Bank Negara would likely keep the OPR unchanged at 2.75 per cent for the rest of 2023, even though the Fed’s chairman had cited the move as a defence of the banking sector’s resilience and unswerving fight against inflation.

“Nevertheless, the possibility of any rate decision to adjust the policy rate would mainly depend on the inflation trend and growth outlook, and to a certain extent any major fiscal policy decision made by the government,” it said.