KUALA LUMPUR, Nov 3 ― Bank Negara Malaysia (BNM) has a strong rationale to hold the overnight policy rate (OPR) steady at 3.0 per cent well into 2024 and possibly beyond, barring any unforeseen jolts.

This view was based on expectations that the US Federal Reserve (Fed) and other principal central banks will maintain their current policy rates for an extended period in response to persistently high inflation, Kenanga Research said in a note today.

"We anticipate that escalating geopolitical tensions, which contribute to mounting macroeconomic uncertainty, could overshadow any emerging signs of recovery in global trade and growth. This would reinforce BNM’s current policy stance, albeit for longer.

"Moreover, scant justification exists for a policy shift, given the belief that it has concluded its rate normalisation cycle, a decision underscored by the emerging indications of subsiding inflationary pressures,” it said.

This, it said, would rein in any hawkish tendencies and grants BNM the latitude to focus on fortifying financial stability while navigating external uncertainties.

In a separate note, Maybank Investment Bank (Maybank IB) said the latest Monetary Policy Statement (MPS) indicates that the central bank views the upside and downside risks to both growth and inflation as balanced.

"While keeping the assessment of continued global growth that is however weighed down by sticky inflation and higher interest rates as well as downside risks such as geopolitical risks and tighter financial conditions, MPS also highlighted early signs of electrical and electronics sector recovery and improvement in China’s economy despite its weak property market.

"We expect OPR to remain at 3.0 per cent in 2024 given our current forecasts of moderate pick up in gross domestic product (GDP) growth to 4.4 per cent and inflation rate to 3.0 per cent,” it said.

Meanwhile, BMI, a Fitch Solutions company, believes that the central bank will exercise caution when it comes to easing monetary policy prematurely.

"The outcome of the recent Fed meeting in November hinted at a potential final rate increase in December. This possibility was noted by the BNM, highlighting that the high-interest rate environment in the US continued to exert significant downward pressure on emerging market currencies,” it said. ― Bernama