Maybank Investment Bank Bhd (Maybank IB) and CGS-CIMB Securities Sdn Bhd expect Bank Negara Malaysia (BNM) to raise the overnight policy rate (OPR) by another 25 basis points (bps) to 2.75% before the year is out, but Hong Leong Investment Bank Bhd (HLIB) says that is unlikely to happen.
The central bank’s monetary policy committee (MPC) is scheduled to meet on Nov 2 and 3, its sixth and last for the year.
Maybank IB said the country should expect another 25 bps rise early next year to bring the OPR to the pre-Covid-19 level of 3% by the end of the first quarter of 2023 to tame inflation.
The inflation rate is forecast to reach 3.3% this year and 4% in 2023.
Maybank IB said that in making its forecast, it took into consideration the impact of announced and expected rationalisation in price subsidies for essential food, fuel and energy (for example, the removal of bottled cooking oil price subsidies in July 2022), assumption of gradual adjustments in fuel prices, and electricity tariffs due to subsidy reviews in 2023.
It said the OPR hike forecast is based on the continued elevated inflation rate, improving job market condition, plus its monthly gross domestic product (GDP) tracker showing faster real growth in the third quarter of 2022 after the pick-up in the first half of the year.
CGS-CIMB echoed Maybank IB’s view, saying its earlier expectation that BNM will pause its hike at its upcoming meeting could now be unlikely as the ringgit has weakened to new lows versus the greenback following a more aggressive US Federal Reserve’s drive to fight inflation.
“As such, we price in one more OPR hike to 2.75%, with further adjustments to 3% in 2023,” it said.
The brokerage said that in the coming months, it expects the country’s headline inflation to moderate, attributed to the dissipating low base effects in 2021, as well as lower global commodity prices.
Government intervention in administered items, such as chicken and petrol prices as well as toll fees, will contain inflation in the near term.
“We also expect minimal cost pass-through from the producer level as price increase moderated in August to 6.8% year-on-year from a high of 11.6% in March this year, dragged by falling costs in agriculture and mining production.
“On the upside, there is a possibility of upward price adjustments in the costs of utilities, as the electricity subsidy review is due at at the end of 2022,” it said.
CGS-CIMB maintained its 2022 consumer price index projection at 3.1%.
However, HLIB kept its expectation that the central bank would keep the OPR unchanged at 2.5% until year-end.
It said headline inflation is projected to soften in the fourth quarter of the year as the low base effect dissipates.
“However, heightened uncertainties on the global front including volatile global commodity prices and supply chain disruptions continue to pose upside risks,” it added.