Bank Negara expected to tighten monetary policy in 2H22

  • Banking
  • Friday, 05 Nov 2021

KUALA LUMPUR: Moody’s Analytics (Moody‘s) expects Bank Negara Malaysia (BNM) to pull the trigger on a rate hike in the second half of next year (2H2022), as Malaysia’s economic outlook is looking brighter going into 2022.

On Wednesday, BNM has retained the Overnight Policy Rate (OPR) at 1.75 per cent at its final Monetary Policy Committee (MPC) meeting of the year, making the policy rate unchanged since July 2020.

In a note today, analyst Denise Cheok said factors nudging BMM towards monetary normalisation in 2H2022 include inflation pressures that are steadily compounding from supply-chain disruptions and rising commodity prices, and crude oil prices which are expected to surge further towards the beginning of next year.

She said the country is also poised to fully reopen by 1H2022, thanks to the high vaccination rate of 75 per cent of the population, enabling the resumption of international travels for fully vaccinated citizens.

"Restrictions on the economically vital Klang Valley have largely been lifted, as a result, manufacturing has picked up and the IHS Markit Purchasing Managers’ Index (PMI) reached expansionary territory in October at 52.2 for the first time since May,” she said.

Additionally, Cheok said cash aid and wage subsidies are expected to help to lower the unemployment rate.

However, she cautioned that the sizeable fiscal spending would bear some of the weight as the economy emerges from the pandemic.

"The government has announced its largest-ever budget at RM332.1 billion for 2022, surpassing this year’s RM322.5 billion budget,” she said.

In a separate note, CGS-CIMB Securities Sdn Bhd (CGS-CIMB) expects the central bank to only begin rolling back its monetary policy in 2H2022F(forecast) with two 25 basis-point rate hikes to bring end-2022F OPR to 2.25 per cent.

"BNM’s decision to maintain the OPR at 1.75 per cent was in line with our and market’s expectations amid the easing strains on real gross domestic product (GDP) due to relaxation in movement restrictions,” said CGS-CIMB economist Lim Yee Ping.

However, she noted that concerns over the downside risks to the growth outlook -- against the expectation of subdued underlying inflation -- suggested a gradual normalisation cycle. - Bernama

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