KUALA LUMPUR, Jan 11 ― StanChart expects Bank Negara Malaysia (BNM) to start hiking interest rates in the third quarter (Q3) of 2022 with two 25 basis points (bps) hikes and another 25 bps increase in the fourth quarter, taking the policy rate to 2.5 per cent by the end of the year.

The current overnight policy rate (OPR) is 1.75 per cent.

This differs slightly from the current market consensus, which is one 25 bps hike in Q3 2022, and none in Q4, with a 2.0 per cent policy rate at the end of this year, said Lee Wee Kok, the Standard Chartered Bank chief economist for Asean and South Asia.

He was speaking today at the StanChart Global Research Briefing 2022: H1 2022 Global and Malaysia Outlook.

He said the central bank is likely to refrain from tightening policy in the first half (H1) due to the nascent economic recovery, even as the headline consumer price index (CPI) was to rise above 3 per cent year-on-year (yoy) in Q4 2021 when electricity discounts lapsed.

"We lower our 2021 CPI inflation forecast to 2.5 per cent from 2.8 per cent due to subsidies, but we raise our 2022 forecast to 2.0 per cent from 1.6 per cent to reflect the lower base and the economic recovery,” Lee said.

He expects core inflation, which excludes food and energy sectors, to rise to 1.4 per cent in 2022 from 0.7 per cent in 2021.

"Despite a challenging Q3 2021, we expect the economy to rebound strongly in the quarters ahead due to a successful vaccination programme, strong external demand, and supportive monetary and fiscal policy.

"We expect the output gap to close in late 2022. Given the historically low policy rate, we expect BNM to start normalising in Q3 2022 in order to realign monetary policy settings with the strong economic recovery," he added. ― Bernama