KUALA LUMPUR: Bank Negara Malaysia (BNM) is likely to maintain the status quo on the Overnight Policy Rate (OPR) for the rest of the year to strike the right balance between inflation and growth trajectory, according to economists.
Earlier today, BNM's Monetary Policy Committee (MPC) announced its decision to keep the OPR at 3.00 per cent following its meeting.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said that MPC members were satisfied with the economic trajectory at the global and domestic levels, whereby the upside and downside risks were very much consistent since the beginning of the year.
"This implies that the prevailing monetary stance is appropriate to provide support to the economy while ensuring the risk of higher inflation will be kept minimal,” he told Bernama.
Mohd Afzanizam highlighted that on the global stage, interest rates appear to be on a downward path -- major economies such as Canada, Switzerland, Sweden and the European Union (EU) have begun cutting down their benchmark interest rates recently.
Soon, the United States Federal Reserve (Fed) would join the club, with September being the likely time, he suggested.
Nevertheless, Mohd Afzanizam expected that BNM is not likely to follow their lead as it will assess local factors such as the outlook for the country’s inflation, especially with fuel subsidy rationalisation being implemented going forward.
"In some sense, the wide interest rate differentials with the developed economies would be narrowed, which would increase the appeal of the ringgit,” he added.
Meanwhile, in a research note, AmBank (M) Bhd said the possibility of a rate hike should not be discounted if demand-pull inflation happens early amid higher wages and expectations of better private consumption.
Nevertheless, the bank continued to maintain its baseline view for the OPR to remain unchanged at 3.00 per cent until the end of 2024 as recent domestic inflation is still tepid and current monetary policy supports the economy.
"We view the overall tone of the BNM's statement as neutral but note that the central bank continues to spell out risks to inflation by way of the potential impact of subsidy rationalisation
"While recent data suggests consumption is rebounding, we believe that the current interest rate level is one of the key drivers in sustaining domestic demand amidst stricter fiscal policy measures,” it said.
Additionally, AmBank said the second quarter of 2024 gross domestic product figure is expected to be positive, possibly surpassing the 5.0 per cent level on the back of better distributive trade growth and a more favourable external sector.
"Meanwhile, domestic drivers are anticipated from the rosy outlook of household spending, aided by wage growth and cash support, as well as ongoing progress in investment activity from both the private and public sectors,” it added. - Bernama
