Experts expect Bank Negara to maintain its current pause on OPR hikes at the next Monetary Policy Committee meeting to sustain and bolster economic growth.
With the inflation dynamic different in Malaysia compared with the United States, the fear of slowing growth has economists holding a bias that the rate cycle here may have peaked with policy makers likely to sustain the economic growth momentum post Covid-19.Malaysia University of Science and Technology economics prof Geoffrey Williams recommended the central bank hold the OPR at 2.75%, which is the normal or equilibrium rate.
Bank Negara had released its Financial Stability Review report for the second half of 2022 recently, which stated that the latest solvency stress test exercises showed that banks are capable of withstanding significant macroeconomic and financial shocks. “Bank Negara does not follow the US Federal Reserve nor does it change the OPR to control the exchange rate. Anyway, US inflation is falling sharply and therefore, it is less likely that US rates will rise,” he added.
He noted the absence of direct flights between Malaysia and second-tier Chinese cities could be a contributing factor in limiting the flow of goods and people between the two nations, thus dampening the impact of China’s economic recovery on Malaysia. “With inflation easing, the main focus will be on gross domestic product and growth expectations, as it is important to stabilise consumer confidence first and foremost,” Innes said.
“Although there are nascent signs of recovery in recent weeks, the local market is down 4% on a year-to-date basis and it would take a while to recover amid moderating growth,” he noted. During its meeting in January and March, the MPC had decided to maintain the OPR at 2.75% despite expectations of another 25 bps hike.
The investment management firm, founded by billionaire Ray Dalio, suggested that to achieve equilibrium conditions, it is necessary to have 2% real growth with 2% inflation, between 4% and 5% nominal spending growth, and an unemployment rate that is around average.
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