Rakuten Trade Sdn Bhd head of equity sales Vincent Lau says the move is positive as it implies the economy is resilient, hence rates were hiked after a pause in January and March this year.
“This is likely the final round of revisions for the year. Banking stocks will benefit from this announcement,” he said, adding that banks will likely benefit from a lower cost of funds and better margins on loans that are not fixed rate.
“There is always a time lag before they raise the fixed deposit (FD) rates, but floating rate loans will see (higher interest rates reflected sooner),” said Lau.
On the flip side, if the rate goes up too high, it may also potentially lead to more non-performing loans, he pointed out.
Although this is a possibility, Lau believes the benefits are far more likely to outweigh the costs of the 25 basis-points (bps) hike to banks.
Areca Capital Sdn Bhd managing director Danny Wong said the OPR hike was needed to cushion the impact of the interest rates gap.
“In 2022, the US Federal Reserve (Fed) adjusted (their interest rate by) 475bps versus BNM by only 100bps,” he said.
He added that this hike, which returned the OPR to its pre-pandemic level, had been highly anticipated earlier in the first quarter of the year.
“I don’t expect a further hike unless core inflation continues to move upwards,” he added.
Looking ahead
In an economic report today, MIDF Investment Bank Bhd expects BNM to take a wait-and-see approach on interest rates, especially monitoring developments with regard to major central banks.
“If Malaysia’s domestic economy were to improve better than expected, we foresee BNM may optimise its monetary arms through normalising its Statutory Reserve Requirement (SRR) from 2% to 3% this year,” it said.
The SRR rate was reduced to 2% in March 2020, and has remained at that level since.
However, any changes will be subject to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions.
MIDF acknowledged a strong greenback has been the main factor for depreciation of most currencies in 2022, on the back of faster-than-expected pace of interest rate hikes by the Fed.
“Once the Fed hits the pause button, we are optimistic the ringgit will appreciate faster. We keep our USD/MYR forecast to average at RM4.20 against the dollar, and end the year at RM4.00,” it added.
Fundamentally, the ringgit is in a good position as the domestic economy stays on an upbeat momentum.
As a net exporter of crude petroleum, liquefied natural gas (LNG) and palm oil, Malaysia stands to benefit from elevated global commodity prices, it noted.
From a medium-term perspective, MIDF believes the policy normalisation is needed to avert risks such as high inflation and any future increase in household indebtedness.
Upward revision in rates by banks
In a statement following the OPR hike announcement, several banks announced revisions in their Standardised Base Rate (SBR), Base Rate (BR) and Base Lending/Financing Rate (BLR/BFR).
RHB Banking Group will revise its SBR, BR and BLR/BFR upwards by 25bps effective May 8, 2023. This includes RHB Bank, RHB Islamic Bank, and RHB Investment Bank.
The group will increase its SBR from 2.75% to 3.00%, BR from 3.50% to 3.75% per annum, and will also revise the BLR/BFR from 6.45% to 6.7% per annum.
Separately, Public Bank announced it will also increase its SBR, BR and BLR/BFR by 0.25% effective May 8.
The bank’s SBR will be 3% in tandem with the OPR while the BR will increase to 3.52% from 3.27% and the BLR/BFR will increase to 6.72% from 6.47%.
Both banks also indicated that fixed deposit rates would also see upward revisions.