Bank Negara expected to tighten monetary policy next year

KUALA LUMPUR: Moody’s Analytics expects Bank Negara to pull the trigger on a rate hike in the second half (H2) of next year, as Malaysia’s economic outlook is looking brighter going into 2022.

On Wednesday, Bank Negara retained the overnight policy rate (OPR) at 1.75% at its final Monetary Policy Committee (MPC) meeting of the year, making the policy rate unchanged since July 2020.

In a note yesterday, analyst Denise Cheok said factors nudging Bank Negara towards monetary normalisation in H2 2022 include inflation pressures that are steadily compounding from supply-chain disruptions and rising commodity prices, as well as 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 H1 2022, thanks to the high vaccination rate of 75% 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 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 RM332.1bil for 2022, surpassing this year’s RM322.5bil budget,” she said. — Bernama

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