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 alongside sluggish labour market recovery, the probability of keeping the OPR at 2.75% 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 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% with the balance of risks tilted towards a print of 3.0% and the Bloomberg consensus peak OPR estimate being 3.0%.
“Despite the slight moderation of headline inflation momentum (three-month moving average, seasonally adjusted) in recent months, the core inflation momentum remains sticky amid resilient domestic demand pressure, further fuelled by prolonged low-interest rate environment,” it said in a separate note.
RHB 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%, in consideration of a longer-than-expected pause in policy normalisation and possible delays in subsidy rationalisation,” it added.
RHB 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% due to robust domestic demand, supported by resiliency in consumer spending and services sector activities.
However, it warned that a more subdued global trade activity may pose negative impacts on export growth and the manufacturing sector.
“We expect consumer spending to expand by 5.1% 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% y-o-y versus the Bloomberg consensus estimate of 4.0% and the BNM forecast of 4.0% to 5.0%.
“Despite the slowdown in external demand, we think that the risks on economic growth itself are limited,” it added.