UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest BNM event, where the central bank kept the monetary conditions unchanged.
Key Takeaways
“In its first Monetary Policy Committee (MPC) meeting of the year, Bank Negara Malaysia (BNM) decided to take a prudent pause on its rate hike cycle, leaving the Overnight Policy Rate (OPR) unchanged at 2.75%. The decision defied market consensus with 17 out of 18 economists/analysts (including us) polled by Bloomberg projected a 25bps hike while the remaining one forecast a pause.”
“BNM judged that a halt to its interest rate hikes is necessary to allow the Monetary Policy Committee (MPC) to assess the impact of the cumulative four back-to-back rate increases last year given the lag effects of monetary policy on the economy. It expects domestic economic growth to moderate this year after an expected strong performance in 2022, in light of a weaker global growth outlook, higher risk aversion in global financial markets amid ongoing monetary policy tightening in major economies, and lingering geopolitical conflicts. Barring any changes to domestic policy on subsidies and price controls as well as global commodity price shocks, the central bank thinks that headline and core inflation will soften somewhat over the course of 2023.”
“There are material changes in the latest monetary policy statement, which we infer that BNM is nearing the end of its interest rate hike cycle. The central bank dropped the line about “the MPC is not on any pre-set course” and “any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner”. In fact, it guided that further monetary policy normalization would be subject to the evolving conditions and their implications to the domestic inflation and growth outlook. This alongside our in-house view on global growth and monetary policy as well as country-specific factors, we now expect BNM to dial down the rate hikes to +25bps to 3.00% by mid-2023. The MPC will next meet on 8-9 Mar.”
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