KUALA LUMPUR: Bank Negara Malaysia's (BNM) decision to maintain the overnight policy rate (OPR) at 2.75 per cent was tactical manoeuvring in the market as the economy remains on solid footing, an economist opined.
Juwai IQI chief economist Shan Saeed said the central bank has been playing its cards strategically from 2019 to 2022 and has successfully kept price pressures in check.
"Monetary policy stability became the hallmark for BNM to meet its mandate in the outlook while all the global banks were also raising rates to curtail price hikes in the global economy," he told Bernama.
Shan said inflation is peaking in the Asean region and would stay low after the third quarter (3Q) of 2023, and monetary policy levers take 12 to 15 months to have an impact at the macro level to bring down the prices of essential commodities.
"In my opinion, many global central banks will lower rates after 3Q or 4Q this year to bolster gross domestic product (GDP) growth trajectory.
"BNM will continue to buttress the economy at the macro level," he said.
Shan said the ringgit has demonstrated structural stability and appreciated 10.64 per cent since October 2022 and is expected to continue its upward movement in 2023, hovering around 4.10 to 4.37 against the US dollar, with stability becoming in vogue.
"An appreciating ringgit is another move to tame inflationary pressure in the economy, and we (Juwai IQI) remain buoyant on the Malaysian economy with GDP hovering between 4.5 and 5.5 per cent in the current fiscal year," he said.
BNM decided to maintain the OPR at 2.75 per cent at its meeting today to allow it to assess the impact of the cumulative past OPR adjustments given the lag effects of monetary policy on the economy.
Coming off a strong performance in 2022, it said Malaysia's economic growth in 2023 is expected to moderate amid a slower global economy whereby growth would remain supported by domestic demand as household spending would be underpinned by sustained improvements in employment and income prospects.
Global inflation on the downswing
Meanwhile, SPI Asset Management managing partner Stephen Innes said BNM's decision was a surprise, given that consensus opinions had expected a hike.
"I would interpret it as a pleasant surprise as the central bank is helping the government's pro-growth stance.
"The good news is that global inflation is on the downswing as global supply chains open up, and perhaps this can be best reflected in the drop in shipping prices, which benefits Asean exporters," he said.
Innes also believed BNM was offered more policy wiggle room after the United States Federal Reserve downshifted to lower rate hikes while the stronger ringgit also eased imported inflation concerns.
"Markets and politicians alike should be happy with this dovish outcome," he said.
Similarly, Bank Islam Malaysia Bhd chief economist Firdaos Rosli also said although BNM's stance came as a surprise, the central bank would probably want to ensure monetary policy remains accommodative at least until the end of 1Q or the next Monetary Policy Committee meeting in March.
"I think BNM's concern is more on domestic rather than external growth. The OPR rate was at its lowest throughout Malaysia's history, which is evident, especially during crises such as the Asian Financial Crisis, Global Financial Crisis and the Covid-19 pandemic.
"The rate is currently accommodative, and it is likely going to be hard to normalise the rate to pre-pandemic level," he said.
Policy rate normalisation needed
MIDF Research said in a note today that BNM is taking a wait-and-see approach to assess the market performance after a series of hikes totalling more than 100 basis points (bps) last year.
"However, we believe the possibility for further normalisation of monetary policy remains given that domestic economic data still showing an upbeat momentum," it said.
The research house also expects a 25 bps rate hike to 3.00 per cent in March 2023 and to normalise BNM's Statutory Reserve Requirement from 2.00 per cent to 3.00 per cent this year.
"From a medium-term perspective, the policy rate normalisation is needed to avert risks that could destabilise the future economic outlook, such as persistently high inflation and a further rise in household indebtedness," it said.
OCBC Treasury Research said the central bank's decision to pause strikes was especially interesting because even as it had highlighted growth concerns before, it was similarly concerned about inflation risks.
"On balance, by essentially declaring that it is done with rate hikes for now, BNM has signalled that growth concerns are starting to manifest more strongly, just as inflation risk has relatively subsided, perhaps with a view that the government fuel and food subsidy regime is likely to stay broadly in place," it said in a research note today.