Financial agency Kenanga Investment Bank Bhd projects that Bank Negara Malaysia (BNM) may raise the overnight policy rate (OPR) by 25 basis points by the end of this year.
The forecast was set following an aggressive interest rate hike by the US Federal Reserve (Fed), 75 basis points, at yesterday’s FOMC meeting.
It is understood that the increase of 75 basis points from the 50 basis points is the largest increase since 1994 in the Fed's efforts to curb the rising inflation rate in May 2022.
Commenting by Kenanga Investment Bank, the Fed's action will usually have an impact on the economy, prompting other central banks to tighten their policies.
While BNM may or may not follow the Fed's aggressive steps in implementing monetary policy, the local central bank will certainly tighten its balance sheet based on the current economic situation.
It is common knowledge that the country’s domestic demand has been improving since the reopening of the country’s borders, and this could lead to an increase in the inflation trend.
Therefore, Kenanga Investment projects an OPR increase of at least 25 basis points for the 3 ministerial policy meetings for this year.
On the other hand, RHB Investment Bank Bhd's note summarizes that the Malaysian government bond market will get domestic bids while net foreign sales may be limited due to the Fed's interest rate decision.
Clearly, this could be due to the level of dollar/ringgit illiquidity onshore and offshore which makes it difficult to get revenue returns.
