Inflation may lead to another rate hike

PETALING JAYA: Malaysia should expect another overnight policy rate (OPR) hike coming ahead for the economic sector due to inflation, says Hong Leong Investment Bank (HLIB) Research.

Despite the ongoing banking stress, it is expected that the federal government will deliver another interest rate increase as inflation remains stubbornly high.

HLIB Research also foresees that Bank Negara will raise the OPR by an additional 25 basis points this year as the balance of risks to the inflation outlook continues to be favourable.

Meanwhile, HLIB Research noted that monetary indicators have become much softer in March 2023 as money supply, broad money supply, total leading loans and loans disbursements continues to move at a moderate pace on a yearly basis.

However, reserve money has grown more rapidly year-on-year (y-o-y) with a 26% increase as opposed to the prior month’s only 25% increase y-o-y.

Deposit growth also remained at a slow pace with only a 7% increase y-o-y following slower business and household deposits, offsetting the pickup in foreign deposits.

Due to slower disbursements across the majority of reasons, including credit cards, passenger automobiles, personal uses and residential property, HLIB Research observed that the growth in total loans trended downwards after slowing down in household loans growth.

As the working capital and investment-related loans continue to grow, business loan growth is sustained at 2.4% y-o-y, in contrast with gross corporate bond issuance increasing to RM10bil due to greater issuances in the banking, insurance, real estate and business services sectors.