KUALA LUMPUR: Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR), which influences lending rates, at 3 per cent, following the lead of the US Federal Reserve (Fed).
BNM's sixth and last monetary policy statement for the year is expected on November 2, 2023.
At its last meeting on September 7, 2023, the central bank decided to leave the OPR at 3 per cent citing moderating inflation and slowing external demand, weighing on the country's growth.
Hong Leong Investment Bank Bhd (HLIB Research) said BNM is expected to keep the OPR unchanged until the year-end, as growth is expected to moderate while inflation eases.
The Federal Open Market Committee (FOMC) unanimously decided to maintain the policy rate at 5.25 to 5.50 per cent on Wednesday.
However, the committee maintained its projection to increase policy rate one more time by 25 basis points (bps) in 2023 as 12 out of 19 participants pencilled in another rate hike to reach a policy rate of 5.50 to 5.75 per cent.
"While latest economic data show slower headline and core inflation, stronger growth outcome and ongoing labour market expansion has led the Fed committee to reduce its expectation of lowering policy rate by 50bps in 2024, slower than previous projection of 100bps," HLIB Research said in a note today.
The investment bank also highlighted that Fed chair Jerome Powell did not rule out another rate hike, but he emphasised rates could remain high for some time. On economic outlook, the FOMC assessed recent indicators suggest that US economic activity has been expanding at a solid pace.
The committee remains highly attentive to inflation risks.
Additionally, the committee also seeks to achieve maximum employment and inflation at the two per cent rate over the longer run.
In support of these goals, the Fed decided to maintain the target range for the fed funds at 5.25 to 5.50 per cent.
In determining the extent of additional policy firming that may be appropriate to return inflation to two per cent over time, the committee will take into account the cumulative tightening of the monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial development.
The FOMC will also continue to reduce its holding of Treasury securities, agency debt and agency mortgage backed securities.
Meanwhile, the Fed expects real gross domestic product (GDP) to grow by 2.1 per cent in 2023 and 1.5 per cent in 2024. On unemployment rate, the Fed expects it to be lower at 3.8 per cent in 2023 and rise to 4.1 per cent, while inflation is expected to record 3.3 per cent in 2023 and moderate to 2.5 per cent in 2024.
Consequently, the Fed expects interest rate to reach 5.6 per cent in 2023, unchanged from previous projection and reduce to 5.1 per cent in 2024, higher than previous projection of 4.6 per cent.