KUALA LUMPUR: BMI, a Fitch Solutions company, thinks a weakened ringgit has prompted Bank Negara Malaysia to keep its benchmark interest rate unchanged.
BMI expects Bank Negara to hold the overnight policy rate (OPR) at three per cent through 2024.
The firm said while the central bank characterised the ringgit as "undervalued" in its policy statement on Thursday, little else changed particularly concerning forward guidance.
"The reason why we still think Bank Negara will continue to hold is policymakers' concern about the value of the ringgit which has slipped more than five per cent over the past year against the US dollar.
"With the US Federal Reserve likely to ease policy in the second half of 2024 (2H24), yield differentials should gradually favour the ringgit over the coming months and prop its value up," it said today.
BMI expects Malaysia to post a relatively robust growth of 4.4 per cent for 2024, which is a marked improvement from 3.7 per cent in 2023.
The projection suggests that the central bank will not be in a hurry to cut to support the economy.
"Wage growth in the services sector has fallen from its recent peak of 9.5 per cent year-on-year (YoY) in the second quarter of 2022 (2Q22) and has largely stabilised just above three per cent in 4Q23.
"The data suggests that services inflation (almost 54 per cent of the basket) will stabilise around two per cent over the next couple of quarters, consistent with our average inflation forecast of two per cent in 2024," it added.
Meanwhile, BMI still forecasts a five per cent increase in average crude oil prices in 2024, which is consistent with headline inflation well below two per cent.
As such, the firm noted that inflation should no longer be a concern.