BNM kept the OPR unchanged at 2.75% in the Mar 2023 MPC meeting, as expected. BNM continues to expect domestic growth to moderate in 2023 amid a slower global economy. Growth will remain underpinned by domestic demand, following continued improvements in employment prospects. On inflation, BNM sees headline and core inflation moderating over the course of 2023 but will remain elevated amid demand and cost pressures. Following these developments, we maintain our expectation for BNM to increase OPR by another +25bps as early as in May, bringing OPR to 3.00% by year-end.

DATA HIGHLIGHTS

BNM kept the OPR unchanged at 2.75% in the Mar 2023 MPC meeting, as expected. On the global front, BNM mentioned that there were some positive developments following China’s economic reopening and better-than-expected growth outcomes in major economies, supported by domestic demand. Nevertheless, the global economy continues to suffer from elevated cost pressures and higher interest rates. In view of the still-high core inflation figures, some central banks are anticipated to continue tightening their monetary policies, posing headwinds to the growth outlook. Following this, BNM noted that the outlook remains subject to downside risks, including an escalation of geopolitical tensions, stronger-than-anticipated inflation figures, and a sharp tightening in financial market conditions.  

On the domestic front, following the strong posting of GDP growth in 2022 at +8.7% YoY, BNM continues to expect Malaysia’s economy to moderate in 2023, amid a slower global economy. In view of the persistent external headwinds, as well as the absence of base effect, we also maintain our expectation for Malaysia to grow at a slower pace of +4.0% YoY in 2023, lower than MOF’s forecast of 4.5%. BNM anticipates China’s reopening is also expected to help push the recovery in tourist arrivals and lend support to export growth. According to BNM, growth will remain underpinned by domestic demand, driven by continued improvement in employment prospects. The continued uptick in tourist arrivals is also expected to further lift tourism-related industries. Meanwhile, the implementation of projects from the re-tabled Budget 2023 is also anticipated to further support growth. Nevertheless, downside risks to domestic growth remains, mainly from the global front including weaker-than-expected growth or more volatile global financial conditions.  

On inflation, BNM sees headline and core inflation moderating over the course of 2023, but still expects them to remain elevated amid lingering demand and cost pressures. In line with this, we continue to expect headline inflation to average lower at +3.1% YoY in 2023 (2022: +3.3% YoY), within official forecast of 2.8-3.8%. BNM views the balance of risks to inflation to be titled to the upside and remain highly subject to any changes to domestic policies, as well as global commodity price developments.

HLIB’s VIEW

According to the MPC, the current stance of monetary policy remains accommodative and supportive of economic growth. However, the MPC did mention that they will remain vigilant to cost factors, including those arising from financial market developments, which could affect the inflation outlook. In addition to this, they also expect inflation to moderate but remain elevated. Taking these into consideration, as well as any possible subsidy adjustments, China’s reopening impact on global commodity prices and the Fed’s hawkish tone following higher-than-expected inflation readings, we maintain our expectation for BNM to increase OPR by another +25bps as early as in May, bringing OPR to 3.00% by year-end.

Source: Hong Leong Investment Bank Research - 10 Mar 2023