Market analysts foresee that the overnight policy rate (OPR) might go up by another 25 basis points (bps) before the end of the year.
The latest to suggest that Bank Negara Malaysia (BNM) will consider this move is TA Securities Holdings Bhd, which said that the OPR will likely rise to 3.25 per cent from the current 3 per as a counter measure to inflation and an outcome of negative interest rates.
TA Securities said BNM’s inflation projection range of 3 per cent to 4 per cent implies that real policy rate (OPR) could be negative, which would prompt a tightening bias in the monetary policy. The last monetary policy committee meeting saw Bank Negara hold its policy rate steady at 3 per cent.
“We believe that there is a possibility that the central bank may increase its OPR, probably by 25 bps, making it to 3.25 per cent by year end. Supporting our view is improving economic growth, especially due to better performance in the domestic activities and trade, challenged by higher inflation as well as volatile capital flows amid an ongoing US Fed tightening cycle,” the company said in a statement.
The next monetary policy decision by BNM is expected to take place in May 12.
The adjustment to interest rates, if made, will likely spark concern among loan seekers who are already facing a harsh financing environment.
However, the Statistics Department recently said that Malaysia’s inflation – measured by the consumer price index (CPI) – went up by 4.5 per cent in February compared with a year ago. This has been propelled by significant increases in transport prices and higher fuel costs.
The department pointed out that the CPI’s transport segment increased to 17.9 per cent in February, soon after rising by 8.3 per cent in January.
This year, TA Securities forecasts that the CPI could rise by 5.1 per cent in March, amidst cost-push factors.
The company said food prices will remain high in the coming months, especially with the upward adjustments in retail cooking oil price and increase seen in global commodity prices.