KUALA LUMPUR – Analysts have mixed views on whether Bank Negara Malaysia (BNM) would increase the overnight policy rate (OPR) further at the upcoming Monetary Policy Committee (MPC) meeting amid rising inflation.
In a note today, Maybank Investment Bank Bhd (Maybank IB) said the central bank is expected to raise the rate further by 25 basis points (bps) to 2.75% at the November 2 to 3 meeting.
“We also expect another 25bps hike early next year to bring the OPR back to the pre-Covid-19 level of 3.00% by end of the first quarter of 2023,” it said, adding that it also maintains the 2022 and 2023 inflation rate forecasts at 3.3% and 4.0% respectively.
Maybank IB said its forecasts consider the impact of announced and expected rationalisation in price subsidies for essential food, fuel and energy (for example, the removal of bottled cooking oil price subsidies in July 2022), assumption of gradual adjustments in fuel prices, and electricity tariffs due to subsidy reviews in 2023.
It said the OPR hike forecast is based on the continued elevated inflation rate, improving job market condition, plus its monthly Gross Domestic Product (GDP) tracker showing faster real GDP growth in the third quarter of 2022 after the pickup in the first half of 2022.
CGS-CIMB echoed Maybank IB’s view, saying its earlier expectation that BNM will pause its hike at its upcoming meeting could now be unlikely as the ringgit has weakened to new lows versus the greenback following a more aggressive US Federal Reserve’s drive to fight inflation.
“As such, we price in one more OPR hike to 2.75%, with further adjustments to 3.00% in 2023,” it said.
The brokerage said in the coming months, it expects the country’s headline inflation to moderate, attributed to the dissipating low base effects in 2021, as well as lower global commodity prices.
Government intervention in administered items, such as chicken and petrol prices as well as toll fees, will contain inflation in the near term.
“We also expect minimal cost past-through from the producer level as price increase moderated in August at 6.8% year-on-year from a high of 11.6% in March this year, dragged by falling costs in agriculture and mining production.
“On the upside, there is a possibility of upward price adjustments in the costs of utilities, as the electricity subsidy review is due at end-Dec 2022,” it said.
CGS-CIMB maintained its 2022 Consumer Price Index projection at 3.1%.
Unlike Maybank IB and CGS-CIMB, Hong Leong Investment Bank Bhd (HLIB) kept its expectation that the central bank would keep the OPR unchanged at 2.5% until year-end.
HLIB said headline inflation is projected to soften in the fourth quarter of the year as the low base effect dissipates.
“However, heightened uncertainties on the global front including volatile global commodity prices and supply chain disruptions continue to pose upside risks,” it added. – Bernama, October 25, 2022
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