KUALA LUMPUR, Nov 3 — MIDF Research expected Bank Negara Malaysia (BNM) to front-load its monetary bullets by raising the Overnight Policy Rate (OPR) to pre-pandemic levels of 3.00 per cent by January 2023.

It said that today’s announcement by BNM to raise the OPR by another 25 basis points (bps) from 2.50 per cent to 2.75 per cent in its final Monetary Policy Meeting of 2022 was in-line with market expectations, but remained below pre-pandemic levels.

In a note today, the research house said that moving into 2023, the focus of BNM’s monetary policy setting would be to ensure a sustainable recovery of Malaysia’s economy.

"With the rising core inflation trend and stronger-than-expected domestic demand, we expect the central bank to front-load its monetary bullets to pre-pandemic levels by January 2023.

"However, the decision will be subject to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions, particularly a continued recovery in the labour market and growing domestic demand,” it said.

MIDF Research shared that BNM hinted strong and robust third quarter 2022 (Q3 2022) gross domestic product (GDP) growth, underpinned by improvements in labour market conditions and income prospects, robust domestic demand continue to fuel local economic activity in the third quarter of this year.

"The central bank expects inflation to peak in Q3 2022. On the price developments, BNM views inflation to be manageable as the first nine months’ average inflation rate remained within the BNM’s 2.2 to 3.2 per cent inflation forecast range.

"BNM foresees core inflation to average closer to the upper range of 2 to 3 per cent for this year,” the research house said.

From a medium-term perspective, MIDF Research noted the policy rate normalisation is needed to avert risks that could destabilise the future economic outlook such as persistently high inflation and a further rise in household indebtedness.

"We view the decision to raise OPR by another 25bps as timely, taking advantage of the stronger-than-expected macroeconomic performances.

"We are also in tune with BNM especially on the stance that the post-15th General Election government policy on fuel subsidy will determine the direction of Malaysia’s inflation outlook for next year,” it said.

On ringgit (MYR) concerns, MIDF Research opined that the depreciation against US dollar (USD) is purely due to the strong appreciation of the US currency as the Federal Reserve is expected to continue opting for an aggressive monetary tightening policy.

Compared to other major currencies, it said the ringgit performed better than the euro (EUR), British pound (GBP), Japanese yen (JPY), Korean won (KRW) and the Australian dollar (AUD).

On a yearly basis, the first 10 months of 2022 saw an average depreciation of USD/MYR at -5.5 per cent year-on-year (y-o-y), EUR/MYR at +6.7 per cent yoy, GBR/MYR at +5.2 per cent y-o-y, JPY/MYR at +12.4 per cent y-o-y, KRW/MYR at +6.6 per cent y-o-y and AUD/MYR at +2.2 per cent y-o-y, it added. — Bernama