Bank Negara to raise OPR to 3.25pct by March, says Bank Islam chief economist
Bank Islam Malaysia Bhd chief economist Firdaos Rosli said this came amid shrinking monetary accommodation due to the improvements in domestic demand. NSTP/SAIFULLIZAN TAMADI
KUALA LUMPUR: Bank Negara Malaysia is expected to raise its overnight policy rate (OPR) by 25 basis points (bps) tomorrow and another 25 basis points in March, pushing the OPR to 3.25 per cent.
Bank Islam Malaysia Bhd chief economist Firdaos Rosli said this came amid shrinking monetary accommodation due to the improvements in domestic demand.
Firdaos said keeping the OPR low for too long could pose a macroeconomic imbalance amid excessive risk-taking activities.
"The consecutive hikes in OPR, notwithstanding the impact on the overall borrowing cost to the Malaysian economy, are meant to gradually remove the excessive monetary accommodation rather than to tame inflation.
"Thus, we expect the OPR to increase by 50 bps during the first quarter of 2023 (January and March meetings) to its new terminal rate of 3.25 per cent.
"The OPR will likely remain unchanged throughout 2H2023 sans global event risk," he told reporters at the bank's media briefing on 2023 economic outlook.
According to Firdaous, Bank Islam expected Malaysia's real gross domestic product (GDP) to moderate to 4.5 per cent in 2023 as growth headwinds abound.
Bank Islam opines that the new government will steer the economy through the global slowdown, circumventing a recession in 2023.
"Our main concern will be sustaining Malaysia's growth momentum in
2023.
"We expect Malaysia's GDP to come in at 8.1 per cent in 2022, exceeding the official projections of between 6.5 per cent to 7.0 per cent.
"However, growth headwinds abound in 2023, and we believe that Malaysia's real GDP growth will moderate to 4.5 per cent, steeper than others in the region," he said.
Meanwhile, Firdaos said Malaysia's inflation had peaked in 2022 and would moderate amid favourable US dollar-ringgit exchange rates and base effects.
He said prices would remain elevated in 2023, though.
Bank Islam expects the headline inflation to average 3.0 per cent in 2023 from 3.4 per cent in 2022, assuming that the government maintained the current fuel subsidy.
"However, inflation will inevitably trend higher than the bank's baseline (3.0 per cent) if the government proceeds with subsidy rationalisation in 2023 as retail oil prices increase.
"We expect the consumer price index (CPI) to increase by 0.42 per cent above the baseline for every 10 cent increase in RON95," he said.
Firdaos said the ringgit was expected to end 2023 at RM4.28 against US dollar amid easing US interest rate cycle.
Firdaos said this time last year, the ringgit's outlook was largely positive when the local note ended at RM4.17 on its first trading day of the year.
"Moderating global growth may affect the ringgit's recovery trajectory. However, we are optimistic that resilient domestic growth and intensified China's economic reopening can support the local note's value.
"We expect the ringgit to end the year at RM4.28 from RM4.40 in 2022," he added.
https://www.nst.com.my/business/2023/01/871405/bank-negara-raise-opr-325pct-march-says-bank-islam-chief-economist
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