Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate at 3% until the end of 2023, according to a report from BMI. The forecast, published on Thursday, indicates that BNM will likely begin cutting rates in the first half of 2024, in line with other major central banks including the US Federal Reserve.
The Monetary Policy Committee (MPC) of BNM recently held a meeting and decided to keep the Overnight Policy Rate (OPR) at 3.00%.
In its report, BMI also revised down its end-2023 inflation forecast for Malaysia from 2.0% year-on-year to 1.8%, citing easing price pressures amid a weakening economy. This would bring average inflation to 2.6% in 2023, compared to 3.4% in 2022.
The Malaysian economy's growth slowed from 5.6% year-on-year in the first quarter of 2023 to 2.9% in the second quarter due to slower external demand and a decline in commodity production. BMI expects real GDP growth to slow from 8.7% in 2022 to 4.0% in 2023, which is below the pre-pandemic average of 4.9%.
"Looking ahead, we believe that the BNM will be wary of loosening monetary policy too soon," said BMI. Compared to regional peers, BNM's cumulative 125-basis point hike has been relatively modest, suggesting less urgency for rate cuts.
Additionally, BMI noted that the Malaysian ringgit has depreciated 5.8% against the US dollar in the year to September 7, making it one of the region's weakest currencies after the Japanese yen. While a slightly weaker ringgit may support Malaysia's lackluster export performance, BMI warned that a rapid return to monetary loosening could further pressure the currency.
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