KUALA LUMPUR, Jan 4 — Bank Negara Malaysia (BNM) is likely to raise the overnight policy rate (OPR) towards the year-end on the back of expectation that inflation will pick up again despite risks of a new coronavirus variant weighing on growth, Maybank Investment Banking Group said today.
A high vaccination rate and the sharp drop in mortality level is set to put the Malaysian economy on the recovery path, with private consumption expected to rebound and up demand for commodities and energy.
Maybank IBG said it expects BNM to raise the OPR by 25 basis points to 2 per cent by the fourth quarter from the current 1.75 per cent.
Headline inflation is expected to climb to 2.5 per cent for the year driven mostly by price movements of fuel and food imports.
Suhaimi Ilias, its chief economist, said the late OPR adjustment underscores BNM’s forecast of output growth, which he expects to pick up only after the second half of this year.
“(Among) conditions for BNM to start considering raising the OPR is output gap,” he told a Zoom press briefing this morning.
“I think the output gap is still negative and only expected to zero-rise after the second half of this year; hence, that’s when BNM will start looking to kick start its interest rates hike cycle. The negative output gap also means the risk of demand-fuelled inflation is still fairly contained.”
The new Omicron variant still poses a downside risk to growth, the bank noted.
But the decoupling between high infections and the sharp decline in deaths suggest vaccination had been effective, which makes the prospect of shutting down businesses more unlikely.
“I think (the prospect) of strict containment measures is minimised, and this is the key message here,” Suhaimi said.
Maybank IBG has maintained a 6 per cent forecast growth for 2022.
