KUALA LUMPUR: Economic analysts predict that Malaysia's economy will expand by between 4.0 and 5.0 per cent in the first quarter of 2022.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the projection is premised on improving domestic demand, especially private consumption.
He added that private consumption is expected to normalise as relaxation over Covid-19 restrictions would incentivise households to spend more.
"Also, the net exports' positive contribution would also help boost economic growth," he told the New Straits Times yesterday.
Afzanizam said besides that, the bank believes the improving gross domestic product (GDP) numbers would allow Bank Negara Malaysia to increase the overnight policy rate (OPR) sometime in the second half (2H) of 2022.
"Bank Negara would have more data to make an informed decision. However, the normalisation of monetary policy accommodativeness would be gradual and will not necessarily move in sync with the US Federal Reserve (Fed)," he added.
The central bank will be announcing Malaysia's GDP number on Friday.
Bank Negara will also announce any decision on OPR after its Monetary Policy Committee (MPC) meeting tomorrow (Wednesday).
During the last MPC in March, Bank Negara's MPC chose to keep the OPR at 1.75 per cent, discounting any rising inflationary pressures.
The central bank said that the overall recovery trajectory remains on track despite the recent moderation in economic activity due to the Omicron-driven Covid-19 resurgences.
The central bank said inflation in many economies remains elevated due to demand and supply factors.
RHB Research group chief economist and market research head Dr Sailesh K Jha said the central bank would want to observe the release of Q1 2022 GDP on May 13 and April core Consumer Price Index (CPI) data on May 25, as well as further evidence that slack in the economy is falling, real wages are on a firm uptrend, and that risks from the conflict in Ukraine do not have a material impact on Malaysia's economy.
The bank-backed research firm has maintained its view that Bank Negara will remain on hold in terms of the OPR at 1.75 per cent at its next meeting.
"We maintain our view that the central bank will hike the OPR by 25 basis points (bps) to 2.0 per cent in 2H 2022. The Bloomberg consensus forecast is 2.25 per cent for the OPR at end-2022," he said.
Sailesh said Bank Negara would not have sufficient evidence on May 11 to hike the OPR.
"The guidance, however, on the path of monetary policy could be given at this meeting. The tone could be neutral in our view," he said.
**Razman view here**
CGS-CIMB Research analysts Nazmi Idrus and Lim Yee Ping said Malaysia might have greater control over its monetary policy movements than its regional peers.
They said the country is a major beneficiary of high commodity prices, especially with palm oil and natural gas prices on an uptrend. Hence the inflow into its current account can offset the outflow on its financial account.
Plus, Malaysia has other measures to minimise ringgit volatility, including encouraging government-linked companies (GLCs) to repatriate money from abroad, which it had done post the taper tantrum in 2013.
"Thus far, Bank Negara Malaysia (BNM) continues to reiterate its cautious stance, contrary to the hawkish Fed, and we believe BNM's focus will continue to be on GDP growth.
"We maintain our forecast of two 25bp Overnight Policy Rate (OPR) hikes in the second half (2H) of 2022," they said.
According to Kenanga Investment Bank Bhd, Malaysia's manufacturing activity is expected to improve due to the reopening of borders and pent-up demand bolstered by various governmental support and a higher vaccination rate.
Nonetheless, Kenanga's growth forecast is susceptible to a number of adverse risks, including global supply chain disruptions caused by China's zero-Covid policy and the Russia-Ukraine crisis.
However, given Malaysia's export diversification and strong demand from important trading partners, the negative impact is projected to be modest.
"Against this backdrop, we maintain Q1 2022 GDP growth estimate at 5.7 per cent, bringing the overall 2022 growth at 5.0 per cent - 5.5 per cent," the research firm said.