KUALA LUMPUR, April 28 — Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 2.75 per cent in the next monetary policy committee (MPC) meeting, said research houses.

In a research note, Bank Islam Malaysia Bhd opined that BNM might maintain the rate in view of the current degree of accommodative stance amidst moderate growth and inflation outlook.

It said that the central bank had hit the brakes on its policy normalisation cycle during the first two MPC meetings in 2023 to assess the impact of the cumulative 100 basis points OPR hikes on the economy.

“As growth will likely moderate further in the second half of 2023 (2H 2023) alongside sluggish labour market recovery, the probability of keeping the OPR at 2.75 per cent throughout 2023 is also high.

“Therefore, we believe that BNM will hold the rate steady in the coming MPC meeting while keeping its policy normalisation open-ended,” it said.

Sharing the same view, RHB Investment Bank (RHB IB) said it expected the central bank to keep the OPR status quo to further assess the lagged impact of the previous consecutive hikes amid a challenging external environment, with the headline inflation rates showing signs of stabilisation.

“We maintain our peak OPR forecast of 3.25 per cent with the balance of risks tilted towards a print of 3.0 per cent and the Bloomberg consensus peak OPR estimate being 3.0 per cent.

“Despite the slight moderation of headline inflation momentum (three-month moving average, seasonally adjusted) on recent months, the core inflation momentum remains sticky amid resilient domestic demand pressure, further fuelled by prolonged low-interest rates environment,” it said in a separate note.

RHB IB said the negative carry for holding the ringgit against the US dollar is unlikely to fade quickly in the short term as the central bank is falling behind the inflation curve and has yet to provide concrete guidance on what the peak OPR would be after having been in pause mode since November 2022.

“The balance of risks to our OPR forecast is tilted to 3.0 per cent, in consideration of longer-than-expected pause in policy normalisation and possible delays in subsidy rationalisation,” it added.

RHB IB added that Malaysia’s gross domestic product (GDP) year-on-year (y-o-y) growth for the first quarter of 2023 (Q1 2023) might stand at 4.2 per cent due to robust domestic demand, supported by resiliency in consumer spending and services sector activities.

However, it said export growth and the manufacturing sector would be the soft spots in tandem with more subdued global trade activity.

“We expect the consumer spending to expand by 5.1 per cent y-o-y in Q1 2023, lifted by festive demand as well as resilience in labour market conditions.

“While households are anticipated to adjust spending in response to the elevated cost of living, the aggregate consumer spending would be underpinned by continued strength in labour market conditions, coupled with the continuation of government support policies,” it said.

As such, the investment bank has maintained its 2023 GDP growth forecast at 5.0 per cent y-o-y versus the Bloomberg consensus estimate of 4.0 per cent and the BNM forecast of 4.0-5.0 per cent.

“Despite the slowdown in external demand, we think that the risks on the economic growth itself are limited,” it added. — Bernama