KUALA LUMPUR (May 9): All eyes will be on Bank Negara Malaysia (BNM) as the central bank is set to announce its overnight policy rate (OPR) decision later on Thursday afternoon.
A Bloomberg poll showed that all 24 economists it surveyed are expecting BNM to keep the OPR unchanged at 3% following March's milder-than-expected inflation data — up 1.8% year-on-year — despite a two percentage point increase in the services tax.
“Inflation remained benign as of March, despite a two percentage point increase in the services tax, suggesting limited pass-through; this reflects subdued core inflation,” said Standard Chartered (StanChart) Global Research in a note.
BNM’s monetary policy committee kept the OPR at 3% at its July 2023 meeting. The headline rate was last raised by 25 basis points in May 2023.
Looking ahead, there are some factors that may bring about a rate hike in late 2024, said StanChart. Among these is the restructuring of Employees Provident Fund accounts, potentially resulting in approximately RM25 billion (about 1.3% of gross domestic product) in withdrawals, which could contribute to demand-driven inflation.
The anticipated increase of civil service salaries by over 13% from December onwards, along with the planned fuel subsidy rationalisation, could also increase the likelihood of a rate hike by BNM later in the year.
“We will watch for any tweaks to BNM’s inflation outlook to assess the risk of a hike in late 2024; however, this is not our base case at the moment,” it said.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said there is a need for BNM to maintain its “present policy stance” in order to keep the risks of higher inflation at bay.
“We are of the opinion that BNM would want to maintain their prudent assessment of inflation, which likely leans towards the conservative side. In other words, keeping the OPR steady would ensure the risk of higher inflation is well in check,” he told The Edge.