KUALA LUMPUR, May 10 ― Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 3.0 per cent throughout 2024, said research firms.
Kenanga Research said BNM is likely to maintain its policy rate unchanged for the rest of the year to support domestic growth while keeping inflation in check.
“The upside risk on the inflation outlook remains tilted to the upside, particularly due to the potential impact of the targeted subsidy mechanism, which could increase price pressure if the government decides to float the fuel price at market rates.
“Additionally, the announcement of a wage hike for government servants in December 2024, along with the new Employees Provident Fund's (EPF) Account 3 initiatives, is expected to support strong domestic demand in the coming months,” it said in a research note.
Nevertheless, growth remains vulnerable to external risks, including heightened geopolitical tensions, China’s fragile recovery, and a slower technology upcycle, Kenanga said.
Additionally, a potential slowdown in the United States (US) economy due to its prolonged high interest rates could threaten the domestic growth outlook.
Hence, BNM may prioritise growth with its 4-5 per cent target. It expects BNM to maintain its neutral stance for an extended period to support sustainable growth while monitoring potential risks to inflation and growth, the research house said.
Echoing Kenanga Research, Maybank Investment Bank Research (Maybank IB) said the OPR expectation parallels its current forecasts of moderate gross domestic product (GDP) growth (2024 estimate: +4.4 per cent; 1Q 2024: +3.9 per cent) and upside risk to inflation.
“At the same time, a stable OPR with expected eventual US interest rate cuts is positive for the ringgit’s outlook amid recent stabilisation. Our forex exchange research sees the ringgit ending this year firmer versus the US dollar at 4.60,” it said.
Maybank IB noted that the ringgit's positive factors include signs of improving domestic economic growth prospects and export rebound in the first quarter of 2024.
Meanwhile, AmBank Economics views BNM’s monetary policy statement as neutral, but that it may signal the potential need for monetary tightening, depending on the demand-side response to fuel subsidy rationalisation.
“In sum, although the current BNM stance on monetary policy direction is neutral, there is rising potential, as per the statement’s signalling, of a more hawkish bias in the coming quarters,” it said. ― Bernama
