MIDF Research: OPR hike signals Malaysia’s sanguine economic prospects

KUALA LUMPUR, July 6 — Another 25 basis points hike in the overnight policy rate announced by the Bank Negara Malaysia today has signalled Malaysia’s sanguine economic prospects, driven by strengthening domestic demand and strong exports growth, says MIDF Research.

In its fourth Monetary Policy Committee meeting on July 5 and 6, the central opted to increase the OPR from 2.00 per cent to 2.25 per cent, matching the research firm and the market’s expectations.MIDF expects further policy normalisation would likely be carried out in the September 2022 MPC meeting with another 25 bps hike.

From a medium-term perspective, the policy rate normalisation is needed to avert risks that could destabilise the future economic outlook such as persistently high inflation and a further rise in household indebtedness. “In that sense, we believe a 50 bps hike in the OPR at one go is off the table. Having said that, we believe BNM may want to increase the OPR by another 25 basis points in September as the focus now is on addressing high inflationary pressures as demand condition has improved amid the high-cost environment,” chief economist Dr Mohd Afzanizam Abdul Rashid told Bernama.

“The fact that core inflation has gone up from 2.1 per cent to 2.4 per cent is a reminder of the potential for a broadening of price pressure beyond food and fuel categories as well,” OCBC economist Wellian Wiranto said in a note.

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