Analysts expect BNM to keep OPR at 3pc throughout 2024

KUALA LUMPUR: Bank Negara Malaysia (BNM) is expected to maintain the overnight policy rate (OPR) at 3.00 per cent throughout 2024.

UOB Global Economics and Market Research expects OPR to stay unchanged at 3.00 per cent through this year, given the balance of risks to growth and inflation.

The firm added that this is also pending the outcome and details of the subsidy measures.

"BNM highlighted in its Economic & Monetary Review (EMR) 2023 that when relative price adjustments are transitory and likely to normalise over a reasonable period of time, it may not require a monetary policy response."This further reaffirms our OPR call given the past experiences of subsidy rationalisation that resulted in just transitory effects (dissipate within one year)," it said in a note.

According to UOB, the only wildcard to its OPR projection is the wage-price spiral risk, as the government is currently selecting 1,000 companies to pilot-test the progressive wage policy starting in June this year. Additionally, it said they are reviewing the civil servants' pay scheme, which is expected to be announced in the upcoming Budget for 2025.

This includes the government being ready to increase its targeted cash aids to mitigate the adverse impact of subsidy rationalisation if necessary.

"All these associated with ongoing supply shortages to some extent will potentially lead to stronger demand as well as pervasiveness and persistence of price increases that would then necessitate monetary policy action to ensure sustainable growth and price stability over the medium term," it added.

Similarly, CIMB Treasury and Markets Research have also reiterated their OPR view of an extended pause at 3.00 percent through 2024.

The bank stated this due to the central bank's positive growth prognosis, forthcoming administered price policy-driven inflation risks, and efforts to mitigate near-term foreign exchange (FX) volatility.

It said these factors diminish the temptation to follow global central banks in their preparations to begin cutting interest rates.

"The latter will be a transitory constraint until US-Malaysia yield gaps narrow, as we continue to note foreign currency (FCY) preference in both deposit behaviour as well as FX-hedged non-resident bond market inflows, which compare favourably against regional peers," it noted.

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