KUALA LUMPUR: Bank Negara Malaysia is expected to maintain the overnight policy rate (OPR) at 3.0 per cent for the year as the US Federal Reserve (Fed) is expected to keep its interest rate higher-for-longer.
The Federal Open Market Committee (FOMC) held the policy rate at 5.25-5.50 per cent for the fourth consecutive meeting on Wednesday.
Hong Leong Investment Bank (HLIB) research said the Fed officially removed their formal guidance of a tightening bias, as Fed Chairman Jerome Powell noted that the policy interest rate was likely at its peak and if the economy evolves broadly as expected, it will be appropriate to begin dialling back interest rate this year.
"Nevertheless, financial markets are expected to be disappointed as interest rate futures showed the odds of March rate cut rising to nearly 65 per cent prior to this meeting. "While the disinflation trend has been progressing well, we do not think the Fed is in a rush to cut rates as the economy remains strong and inflation is still above 2.0 per cent," HLIB research said.
FOMC stated recent indicators suggest that economic activity has been expanding at a solid space.
During this policy meeting, HLIB Research said Powell reiterated that they were trying to balance between moving too slowly and causing significant deterioration in the economy or ease prematurely and risk inflation settling above target.
The firm said this suggests that while the Fed is less inclined to increase interest rates, they are also not in a hurry to cut interest rates, leaving the Fed at a neutral position in the short-term.
It maintains its our expectation that the Fed will maintain the policy rate at 5.25-5.50 per cent in the upcoming March meeting.
Closer to home, HLIB research expects BNM to maintain the OPR at 3.0 per cent for the year," it added.