The Borneo Post

BNM likely reaching the end of its tightening cycle

Yvonne Tuah

Analysts believe that Bank Negara Malaysia (BNM) has likely reached the end of its tightening cycle, with headline inflation expected to trend downwards this year.

In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) said, “We still believe that BNM has reached the end of its tightening cycle and will keep the OPR unchanged at 2.75 per cent for the rest of the year.

“This is predicated on a further downtrend in headline and core inflation to below three per cent and an expected global economic slowdown amid tighter financial conditions, which could weigh on domestic growth over the next year.

“We believe that BNM’s dedication to maintaining both stable prices and sustainable economic growth is coherent with this view.”

However, it pointed out that there is still room for the central bank to adjust the policy rate, probably with another 25 bps rate hike to three per cent, should an unexpected shock to global commodity prices or global financial markets, as well as changes to local subsidy policy, lead to a resurgence in domestic inflationary pressures.

“Ceteris paribus, we do not expect BNM to cut rates in 2023 or 2024,” it added.

It noted that BNM stressed that its monetary policy stance will continue to prioritise managing inflation risks whilst still supporting sustainable economic growth amidst global economic headwinds.

It also reiterated that the Monetary Policy Committee (MPC) will continue to consider the cumulative impact of past OPR adjustments in future decisions in view of the lag effects of monetary policy on the economy.

BNM highlighted that stronger domestic demand could still offset external downside risks to growth, with further upside potentially arising from a stronger-thanexpected labour market, tourism activity, and the implementation of large projects from the retabled Budget 2023.

“That said, a more intense domestic inflationary pressures remain a key risk to the overall inflation outlook, despite a moderation in global cost factors,” Kenanga Research said.

We still believe that BNM has reached the end of its tightening cycle and will keep the OPR unchanged at 2.75 per cent for the rest of the year.

Kenanga Research

Business

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2023-03-31T07:00:00.0000000Z

2023-03-31T07:00:00.0000000Z

https://epaper.theborneopost.com/article/282518662761624

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