BNM has begun the process of OPR normalisation with new hike

Bank Negara Malaysia today raised the OPR by 25bps while the market expected no change in what is seen as a surprise move.

BNM decided to increase the Overnight Policy Rate from 1.75% to 2.00% in its third Monetary Policy Meeting of 2022, differing our and market’s expectations.

In the Monetary Policy Statement, BNM highlighted that the sustained reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activity.
Bright economic prospects ahead.

In terms of growth outlook, BNM foresees growth momentum is on a firmer footing, driven by strengthening domestic demand and steady exports growth.

OPR setting to ensure recovery

The transition to endemicity and international borders reopening on 1st Apr-22 will support economic activity, lower unemployment rate, higher labour participation rate and better income outlook.

“Another 25bps rate hike in 3QCY22. We believe the focus of BNM’s monetary policy setting is to ensure a sustainable recovery of Malaysia’s economy.

“With the rate of inflation hovering within BNM’s forecast, we opine there is less pressure for BNM to adopt aggressive policy tightening.

“At this point, we expect another 25 basis points rate hike to 2.25% in 3QCY22. However, the decision will be subject to the stability of economic growth, the pace of inflation rate and improvement in macroeconomic conditions, particularly a continued recovery in the labour market and growing domestic demand,” says MIDF.

iProperty on OPR

In light of the recent announcement of the OPR during Bank Negara Malaysia’s recent MPC meeting, Shylendra Nathan, Country Manager -  iProperty.com.my says a gradual increase is necessary.

“The increase in the OPR gradually is in line with improving economic conditions such as the transition towards COVID-19 endemicity, the latest relaxation of travel measures, and expected consumer spending growth in 2022.

“As we have mentioned previously, a gradual and measured increase of the OPR is necessary for Malaysian consumers to adapt to rising interest rates and better prepare their finances. Furthermore, a progressive rise in the OPR will accommodate the country’s broader economic recovery given the prevailing inflationary pressure.”