BNM will likely increase OPR by 25 basis points to 2% in 2H22, analysts reiterate. -AFP photo

KUCHING: Bank Negara Malaysia (BNM) will likely raise the overnight policy rate (OPR) by 25 basis points (bps) to 2% in the second half of 2022 (2H22), analysts reiterate.

RHB Investment Bank Bhd (RHB Investment Bank) maintained its view that BNM will remain on hold in terms of OPR at 1.75% at its May 11 meeting of the Monetary Policy Committee (MPC).

“We maintain our view that the central bank will raise the OPR by 25 basis points to 2% in 2H22,” the research firm said.

“The one-year interest rate swap (1YR IRS) currently stands at around 2.4% and the Bloomberg consensus forecast is 2.25% for the OPR at the end of 2022.

“We maintain our consumer price index (CPI) inflation forecast for 2022 of 2.6% year on year (year-on-year) compared to the Bloomberg consensus estimate of 2.4% and to print 2021 by 2.5%.

“We are seeing from our proprietary supply chain congestion indicators that conditions are easing, therefore inflationary pressures from this factor will be limited in the near term.”

In the opinion of RHB Investment Bank, BNM will not have enough evidence (based on what the research firm thinks of the range of indicators it looks at when making policy decisions) on May 11 to increase l ‘OPR.

“Guidance, however, on the monetary policy path could be given at this meeting.”

According to the research firm, the central bank will want to observe the release of the gross domestic product (GDP) for the first quarter of 2022 (1Q22) on May 13 and the April CPI core data on May 25, as well as d Other evidence than looseness is that the economy is down, real wages are well on the upside, and risks from the conflict in Ukraine are not having a significant impact on the Malaysian economy.

“In addition, BNM will want to observe how the recent weakness in the ringgit and local currency bond market plays out, for example, is it temporary or long-lasting as we leave the Federal Reserve Bank (Fed) Federal Open Market Committee on May 5 .(FOMC) meeting.

Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) raised its CPI forecast to 2.5% from 2.1%.

Following the surge in global commodity prices, MIDF Research estimated that Malaysia’s inflationary pressure would be indirectly affected, particularly via higher food inflation at 3.5%, compared to the original projection of 2.3. %.

As the government will continue with its fuel subsidy mechanism, the research arm forecasts that fuel inflation will continue to decelerate and non-food inflation will remain low at 2.1% in 2022 from 2.8% in 2021.

“With inflation expected to remain in the two to three percent range, BNM will likely raise the OPR by 25 basis points to two percent in 2HCY22 on sustained economic growth,” MIDF Research also forecast.

“Nevertheless, we believe the government will also take steps to contain inflation if rising commodity prices and prolonged supply disruptions in the international market lead to stronger inflationary pressures.”

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