Malaysia: BNM kept the policy rate unchanged, as expected – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest interest rate decision by the BNM.

Key Takeaways

“Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) unchanged at 2.75% for the second straight meeting this year. This came in line with our estimate and Bloomberg consensus whereby 11 out of 20 polled analysts expected a rate pause, while the remaining 9 analysts anticipated a 25bps hike. The central bank cited today’s rate decision is necessary to further assess the impact of the cumulative OPR adjustments of 100bps last year, taking into account the lag effects of monetary policy.”

“Overall, BNM took note of positive developments with the reopening of China’s economy while continuing to expect a moderate growth for Malaysia’s economy amid slower global growth. BNM also expects implementation of projects from the recently retabled Budget 2023 to provide support for the domestic economy. Although headline and core inflation are expected to slow this year, inflation risks are still tilted to the upside which will predominantly stem from potential domestic policy changes on subsidies and price controls, as well as volatility in global commodity prices.”

“On the forward guidance part, BNM added a new line that “the MPC remains vigilant to cost factors, including those arising from financial market developments, that could affect the inflation outlook.” The central bank also continued to signal that further normalisation of monetary policy would depend on the evolving conditions, but there was no guidance on timing or magnitude of potential changes. As such, we continue to expect one more 25bps hike to 3.00% at the next policy meeting on 2-3 May.  Thereafter, the central bank may then keep rates on hold for the rest of the year.”