KUALA LUMPUR, Aug 8 — Bank Negara Malaysia (BNM) is likely to maintain its hawkish stance in September and increase the overnight policy rate (OPR) for the third consecutive time this year, according to Kenanga Research (Kenanga).

In a note today, the research house believes the OPR hike would be based on the expectation that Malaysia’s inflation rate would average above the 4.0 per cent level in the second half of 2022 (2H22) due to rising food prices amidst swelling import costs.

“In an effort to realign with other central banks’ hawkish stance, we reckon that BNM may continue to tighten post-September meeting, with the OPR reaching 3.0 per cent by the first quarter of 2023 (1Q23),” it said.

Meanwhile, Kenanga said the ringgit may continue to trade above the 4.40 level against the US dollar in the near term as safe-haven demand is expected to remain strong amid heightened global recession fears, United States (US) Federal Reserve’s continued hawkishness, potential escalation of US-China tension and Europe’s looming energy crisis.

“However, the local note may start to gain ground against the greenback in 4Q22 due to the expectation of strong foreign investment flows into Malaysia amid an improvement in risk appetite for emerging market assets,” it said.

As for the bond market, the research firm expects foreign demand for domestic bonds to remain generally pressured in August amidst the global risk-off sentiment due to lingering recession concerns and renewed US-China tensions.

“Domestic yields will likely rise this week, partly tracking the recent surge in US Treasury yields after US recession fears were dispelled following the far better-than-expected jobs report for July,” it said.

However, it noted that the uptrend may be capped by a potentially strong domestic 2Q22 gross domestic product (GDP) growth reading for Malaysia, which is scheduled to be released on August 12, 2022. — Bernama