BANK Negara Malaysia (BNM) is expected to maintain its overnight policy rate (OPR) at 1.75% through to 2022 with the central bank likely judging that it has done enough with the 125 basis points (bps) worth of interest rate cuts in 2020.
According to Fitch Solutions Country Risk & Industry Research, the spike in inflation in April and May has proved transient in line with its view as low base effects from oil prices during that period in 2020 diminished in June and July while spare capacity built up due to the continued disruption caused by the COVID-19 outbreak.
“Meanwhile, oil price growth is likely to be slightly negative in 2022, helping to contain inflationary pressures that could result from a putative economic recovery in 2022,” projected the research house whose opinion is independent of Fitch Ratings; credit ratings.
“Therefore, a hike to contain rising inflation is also likely to remain off the cards in both the remainder of 2021 and 2022.”
BNM likely hold through 2022 Malaysia’s OPR rate, %
However, Fitch Solutions foresees some upside risks if other major central banks around the world increasingly signal tighter monetary policy in late 2022 or in 2023 in order to head off rising inflation which could force emerging markets – including Malaysia – to pre-empt such a move with hikes of their own in order to shore up their currencies.
To-recap, BNM decided after its monetary policy committee meeting yesterday (Sept 9) to hold its benchmark OPR at 1.75% which was itself the result of 125bps worth of cuts in 2020 in order to support the economy against the pandemic’s impact.
In the statement accompanying the decision, BNM struck a similarly optimistic tone as it did in its July statement despite acknowledging the risks arising from the third wave and the lockdown measures, according to Fitch Solutions.
In this regard, the research house pointed to the part of the statement saying, “…the recent gradual relaxations for more economic sectors to operate, along with higher adaptability of firms to the new operating environment and continued policy support, would partly mitigate the impact and allow the economy to resume its recovery path”.
“We note that this is despite the central bank revising down its own forecast range for real GDP (gross domestic product) growth to 3% to 4% from 6% to 7.5% previously,” added Fitch Solutions. – Sept 10, 2021
