THE surprised 25 basis points (bps) overnight policy rate (OPR) hike by Bank Negara Malaysia (BNM) on Wednesday (May 3) may be the last for this year with the central deemed to have “completed its policy normalisation” exercise.
This is even as the central bank’s Monetary Policy Committee (MPC) still has three meetings between now and end-2023. The meetings are slated for July 5-6, Sept 6-7 and Nov 1-2.
“Given the surprise decision by BNM in its May’s MPC meeting, we believe BNM might have reached its policy normalisation target for now,” Kenanga Research head of economic research Wan Suhaimie Wan Mohd Saidie and team pointed out in its economic outlook.
“Barring any external shock to the growth and inflation outlook, we expect BNM to keep OPR steady at 3.00% for the rest of the year.”
Nevertheless, the research house observed that there seems to be room for rate adjustments as the MPC stated that “it will continue to ensure that the monetary policy stance remains consistent with the outlook of domestic inflation and growth”.
“Though we have revised our 2023 headline inflation forecast upwards to 2.9% from 2.5% earlier considering the prospect of potential subsidy rationalisation, we believe the current policy rate is sufficient to achieve moderate inflation and sustainable growth,” opined Kenanga Research.
“This is also premised on the assumption that domestic growth is susceptible to external risk amid the heightened global economic slowdown as a result of tighter financial conditions in the advanced economies.”
Hong Leong Investment Bank (HLIB) Research described the latest OPR hike as “within its expectations of one 25bps OPR hike this year as early as May”.
“Our economics team expects BNM to stay pat for the remainder of the year unless growth picks up at a stronger pace. In the latter scenario – which isn’t our base case – this could lead to another 25bps hike this year,” projected head of research Jeremy Goh and economist Felicia Ling.
Moving forward, HLIB Research expects the banking sector as a near term gainer as this should help alleviate some pressure off net interest margin (NIM) in 2Q 2023.
“From our sensitivity analysis, we estimate that every 25bps OPR hike would widen sector NIM by 5-6bps which in turn will lift earnings forecast by 3%-4% (on a full year basis without taking into account of potential market-to-market losses and higher defaults),” observed the research house.
“Alliance Bank Malaysia Bhd and Bank Islam Malaysia Bhd would benefit the most while Affin Bank Bhd and Public Bank Bhd are poised to gain the least.”
Added HLIB Research: “Sectors on the losing end are likely to be REITs (narrowed spread between divvy yields and fixed deposit) and property (our property analyst estimates that a 25/50/75bps rate hike would increase monthly mortgage instalments by 3.2%/6.5%/9.9%).” – May 5, 2023
