Malaysia: No change to the policy rate by the BNM – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the latest interest rate decision by the Bank Negara Malaysia (BNM).

Key Takeaways

“Bank Negara Malaysia (BNM) kept the Overnight Policy Rate (OPR) unchanged at 1.75% … (20 Jan). This came in line with our estimate and market expectations. The next two scheduled monetary policy meetings are on 2-3 Mar and 10-11 May.”

“The overall tone of the latest statement remains optimistic on Malaysia’s growth outlook in 4Q21 and 2022. Key growth drivers include rising global demand, domestic private spending, improved labour market, and ongoing policy support. BNM sees underlying inflation or core inflation rising but to remain modest amid continued slack in the economy and labour market. The inflation outlook, however, is still subject to global commodity price movements and prolonged supply-related disruptions.”

“There was no mention of the need to review the degree of monetary accommodation. BNM continued to judge that the existing monetary policy stance remained appropriate and accommodative. However, given BNM’s sanguine outlook on the economic recovery and to be ahead of the curve, we think BNM may consider normalising interest rates in the coming months. Our view is also backed by improving labour market conditions, progress in vaccinations, and better management of the pandemic. We are revising our OPR view to two 25bps rate hikes, with the first hike in 2Q22 followed by another in 3Q22 (vs. one 25bps rate hike in 3Q22 previously). This will bring the year-end OPR target to 2.25%.”