KUALA LUMPUR: The country's present level of growth and inflation may have done enough to enable Bank Negara Malaysia to hold the Overnight Policy Rate (OPR) steady at three per cent at its meeting today and for the rest of the year, said economists.
The Monetary Policy Committee raised the interest rate by 25 basis points (bps) on May 3 last year but then kept it unchanged in the next five meetings.
Economist Dr Geoffrey Williams said the country's headline inflation was in line with historical average.
"The OPR is unlikely to change. There is no pressure on Bank Negara to raise the key rate. The ringgit is also strengthening.
"The overriding concern will be to keep a steady hand on the tiller and guide the economy through the rest of the year, given global headwinds that are outside of the control of policymakers.
"There is no need to carry out any preemptive action," he added.
Economists have said the United States Federal Reserve's (Fed) monetary policy decision could significantly affect emerging markets, including Malaysia.
"But Bank Negara does not need to follow the Fed (move)," said Williams.
The Fed recently kept its key interest rates unchanged at 5.25 to 5.50 per cent.
Octa analyst Kar Yong Ang said based on Bank Negara's monetary and financial developments report on April 30, the country's headline inflation was stable at 1.8 per cent in March (February: 1.8 per cent) while core inflation moderated to 1.7 per cent (February: 1.8 per cent).
Based on advance estimate, Malaysia's economy grew 3.9 per cent in the first quarter.
"The chances of keeping the OPR unchanged are high. On one hand, this gives additional weight to the ringgit but on the other hand, in the context of a strong US dollar, this may curb the growth of the local note.
"The US dollar-ringgit may moderate in the short term to the 4.6500-4.7000 level," said Kar.
MARC Ratings Bhd said year-to-date inflation of 1.8 per cent, compared to 1.5 per cent in the fourth quarter of 2023, pointed to the end of the disinflationary trend.
"Going forward, inflation is expected to be between 2.5 and 3.0 per cent in 2024 (2023: 2.5 per cent) with a gradual uptick in the near future due to spillovers from new tax measures and the expected execution of targeted subsidies throughout 2024.
"In view of the present level of growth and inflation, Bank Negara will likely maintain the OPR at three per cent," it said.
CIMB Research said Bank Negara might extend its rate pause, pending finer details on the government's fuel subsidy rationalisation plans.
The research firm said withdrawals from the soon-to-be introduced Employees Provident Fund Account 3 (Akaun Fleksibel) and civil servants' salary hike were poised to give private consumption a boost, although the real impact might be diluted by higher inflation in the second half keeping demand-pull inflation in check.
"The demand boost and administered price policy changes, nonetheless maintain the hawkish skew for OPR, particularly in the context of the delayed Fed pivot and renewed emerging market currency volatility.
"Given a preference for intervention and resident inflows to address ringgit's weakness, the monetary policy is likely to remain status quo and we maintain our end-2024 OPR forecast of three per cent," CIMB Research added.
HSBC Global research believes that Bank Negara had no reason to hike or cut the OPR for now.
HSBC Global research Asean economist Yun Liu said a largely benign inflationary environment and a nascent economic recovery pointed to keeping the policy on hold.
She said given the repricing of the Fed rate cuts and prolonged greenback strength, Bank Negara was unlikely to follow Bank Indonesia and Banko Sentral ng Pilipinas in hiking their key rates by 25bps.
Hong Leong Investment Bank Bhd also maintained its expectations for the central bank to keep the OPR at three per cent for the rest of the year after the Fed kept its interest rates at 23-year highs.