KUALA LUMPUR: Bank Negara Malaysia is taking a wait-and-see approach to assess the market performances after a 100 basis points (bps) increase in Overnight Policy Rate (OPR) last year, MIDF Research said.
The firm, however, believes the possibility for further normalisation of monetary policy still remains given that domestic economic data still showing upbeat momentum.
Bank Negara today maintained the OPR at 2.75 per cent in its second Monetary Policy Meeting of 2023.
"We believe the current focus of Bank Negara's monetary policy setting is to ensure a sustainable growth momentum of Malaysia's economy," MIDF Research said.
"With the rising core inflation trend and strongerthan-expected domestic demand, we expect the central bank to restore its monetary bullets to pre-pandemic levels to 3.00 per cent in the first half of 2023."
The firm added that the central bank would likely normalise its statutory reserve requirement (SRR) from 2.00 per cent to 3.00 per cent this year. The SRR rate was reduced to 2.00 per cent since March 2020.
However, the decision would be subjected to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions, particularly a continued recovery in the labour market and growing domestic demand, MIDF Research said.
"From a medium-term perspective, the policy rate normalisation is needed to avert risks that could destabilize the future economic outlook such as persistently high inflation and a further rise in household indebtedness," it added.