Malaysia: BNM left rates unchanged – UOB

Bank Negara Malaysia (BNM) left the Overnight Policy Rate (OPR) unchanged at 3.00% for the third straight meeting today (2 Nov). The decision was widely expected by us and market consensus. Today’s meeting is the final meeting for the year. The next scheduled meeting and rate decision is on 23-24 Jan 2024. 

The latest monetary policy statement (MPS) kept a neutral tone with no changes made to the forward guidance. BNM continued to highlight downside global risks from elevated inflation and higher interest rates, escalating geopolitical tensions, and a sharp tightening in financial market conditions. On the domestic economy, BNM held a positive view that growth would be supported by a further recovery in the labour market, improving tourism activity, a turnaround in the electrical and electronics down cycle, implementation of multi-year investment projects and measures unveiled under the Budget 2024. Inflation risks are subject to volatile commodity prices, changes to domestic policy on subsidies and price controls, as well as financial market developments.  

Based on the current growth and inflation outlook, we do not see any compelling reasons for the OPR to be adjusted either way going into 2024. The external environment remains uncertain with more downside risks, which counter a more restrictive monetary policy stance. On the other hand, inflation risks are tilted higher given the implementation of targeted subsidies and service tax rate hike by 2%, making it harder for BNM to lower rates that could further exacerbate the MYR weakness. As such, we maintain our projection for OPR to stay at 3.00% throughout 2024.