KUALA LUMPUR: Local investment banks expect Bank Negara to raise the overnight policy rate (OPR) by at least 25 basis points (bps) by year-end, tracking the US Federal Reserve’s 75 bps rate hike on Wednesday.
In a note yesterday, Kenanga Investment Bank Bhd
said it expects the central bank to maintain its hawkish tone and raise the OPR by at least 25 bps during each of its remaining two Monetary Policy Committee (MPC) meetings this year, slated for Sept 7-8 and Nov 2-3, Bernama reported.
It said the Fed’s aggressive posturing and obsession with taming inflation indicate that it would continue to raise interest rates sharply, at the expense of growth.
As for Malaysia, it noted that inflationary pressure is mounting, registering a hotter-than-expected 3.4% in June 2022 versus 2.8% in May 2022, on the back of pent-up demand and tourism-led spending following the reopening of international borders and removal of Covid-19 restrictions.
“Along with the expectation that gross domestic product (GDP) growth would continue to be driven by the stronger recovery in domestic demand, we expect Bank Negara to maintain its hawkish tilt and raise the OPR by at least 25 bps each at its remaining two MPC meetings for this year,” said Kenanga.
Meanwhile, Hong Leong Investment Bank Research (HLIB Research) is maintaining its expectation that Bank Negara would increase the OPR by an additional 25 bps in the September MPC meeting, ending the year with the OPR at 2.5% from the current 2.25%.
“The reopening of international borders, transition to Covid-19 endemic status and special Employees Provident Fund withdrawal scheme are expected to support Malaysia’s GDP in the second quarter of 2022,” it said in a separate note.
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