In fact, CGS-CIMB Securities expects BNM to turn “hawkish” and resume its rate hikes later this year.
“From our perspective, BNM should turn hawkish in H2 2023 due to several factors, including China’s reopening which has finally led to a turnaround in its economy with a strong pickup in February’s purchasing managers index, alluding to positive spillover effects towards global growth,” it said in its Economics Update.
At the conclusion of its Monetary Policy Committee (MPC) meeting yesterday, BNM announced it would keep the OPR unchanged. At the previous MPC meeting in January, BNM hit the pause button to maintain the OPR at 2.75%, after four consecutive 25-basis point (bps) hikes in 2022.
CGS-CIMB’s expectation that BNM will turn “hawkish” probably alludes to US Federal Reserve chairman Jerome Powell’s hawkish comments to the US Congress on Tuesday when he raised the possibility of the Fed returning to large rate hikes to tackle “sticky inflation”.
Markets have since priced in an almost 75% chance of a 50bps rate hike at the Fed’s March 21-22 policy meeting, according to CME’s FedWatch tool.
Sooner rather than later
Hong Leong Investment Bank also leans towards BNM resuming OPR hikes sooner rather than later. In a research note, it maintained its expectation for BNM to increase the OPR by another 25bps as early as May, bringing the rate to 3% by year end.
It noted that the MPC views the current stance of monetary policy as remaining “accommodative and supportive of economic growth”.
“However, the committee did mention that it will remain vigilant to cost factors, including those arising from financial market developments, which could affect the inflation outlook,” it said in its Economics report.
Maybank Investment Bank (Maybank IB) noted that the central bank in its Monetary Policy Statement (MPS) indicated it is still assessing the impact of last year’s cumulative 100bps OPR hikes given the lag effect of monetary policy on the economy 12-18 months after the start of the OPR hike cycles in May 2022.
“MPS also retains the words ‘further normalisation’, implying current pause does not mean the end of the OPR hike cycle.
“We expect another 25bps hike to bring the OPR back to the pre-Covid-19 level of 3%, with our eyes on the next three MPC meetings on May 2-3, July 5-6, and Sept 6-7 this year,” Maybank IB said in its Economics report.
Meanwhile, Public Investment Bank said it maintained the view that BNM will likely retain its wait-and-see stance by pausing and keeping the OPR unchanged at the May MPC meeting.
“However, while the future decision will be data-dependent, we see the likelihood of another 25bps rate hike to 3% in the second half of 2023 within its pre-pandemic level, but this hinges on possible fuel subsidy rationalisation in H2 2023,” it said.
Kenanga Research’s contrarian view
However, Kenanga Research bucked the trend, stating it expects the OPR to remain unchanged at 2.75% till year end.
Kenanga Research said this view is backed by the MPC’s primary aim to “calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth”.
“Given that growth and inflation outlook are expected to moderate this year amid downside risk from the external front, we foresee a small probability that BNM will resume its rate hike in the near term.
“Therefore, barring unforeseen external and domestic shocks on growth and inflation outlook, we expect the OPR to remain unchanged at 2.75% for the rest of the year,” it said in a note today.