Citi Research warns that BNM’s pause in raising OPR will only provide temporary respite.
“With core inflation still seen elevated and risks to the upside, we expect at least another 25 basis points (bps) hike in March and another 25bps in May, with further hikes in the second half of 2023 a possibility,” said Citi Research in a research note today.
On the global front, it continues to see “rolling country level recessions”, with high inflation and tight monetary policy likely to plague the outlook as geopolitical challenges persist.
Citi Research’s forecast is mirrored by Public Investment Bank and CGS-CIMB Research.
Public Investment Bank expects another 25bps rate hike to 3% in the second half of 2023, but this hinges on domestic policy measures such as the possible introduction of a targeted fuel subsidy and price controls as well as global commodity price developments.
“Going forward, as BNM highlighted the significant downside risks that there could be a shift from global growth slowing down, we anticipate any changes to the OPR will depend on how well the domestic economy does,” it said in a research note.
The central bank kept its OPR at 2.75% at its first Monetary Policy Committee (MPC) meeting for 2023 yesterday, defying market expectations of a 25bps rate hike to 3%.
CGS-CIMB Research said BNM highlighted it is “not quite done” with raising interest rates and that the decision to pause the hike was to “assess the impact of the cumulative past OPR adjustments”.
“We see this as implying BNM’s cautious outlook moving forward,” it said, noting the direction of monetary policy is still upwards but with interest rate hikes likely to happen only in the second half of the year.
“In our view, there are uncertainties ahead, with the increasingly dovish central banks’ stance globally, (the) new Malaysian Budget 2023 being announced in February as well as China’s recent reopening, which BNM may want to see clarified before its next decision,” it added.
CGS-CIMB Research said Budget 2023 may not give much clarity in terms of decisions over new taxes and subsidies as the government may hold off negative announcements until state elections mid this year.