Thailand
Malaysia: Another OPR hike likely
PETALING JAYA: The market is convinced that Bank Negara will raise its overnight policy rate (OPR) again tomorrow, although some economists questioned the need for a hike amid rising recessionary risks.
A poll by Reuters found that 25 out of 27 economists surveyed predicted Bank Negara would hike its OPR by 25 basis points (bps) to 2.75% from 2.5% at its Nov 3 meeting.
If this happens, there are concerns that some segments of borrowers, individuals and businesses alike, may not be able to digest higher borrowing costs.
After all, the OPR had been raised by a cumulative 75 bps over three rounds of hikes this year.
For an economy like Malaysia which is highly dependent on private consumption, a higher OPR may cause Malaysians to cut back on spending and in turn, negatively affect the economy.
On the contrary, economists also argue that an increase in interest rates is unavoidable, considering the hawkish monetary stance in many parts of the world.
Many central banks, especially the Federal Reserve of the United States, have been raising their benchmark rates over the past several months in order to tame inflation.
A move to retain the OPR at the current level of 2.5% would widen the interest rate differential against the benchmark rate of the United States, especially since the world’s biggest economy has been aggressively hiking its federal funds rate.
A big spread between both rates would induce more foreign fund outflows in search of higher returns, and in turn put a pressure on the already depressed ringgit.
The ringgit has fallen by over 13% this year against the US dollar.
A higher OPR may also be justified, considering that the domestic inflation level remains elevated.
In September, Malaysia recorded an inflation rate of 4.5%, although it eased slightly from the 4.7% rate recorded in August.
HELP University economist Paolo Casadio, however, believed that it is best for Bank Negara to take a pause this year.
“Bank Negara has to consider what is more important at this juncture.
“A more short-term and internally focused analysis should push for at least the 3% upper bound of neutrality in the interest rates.
“A more long-term oriented and more focused on the international scenario would suggest a pause at 2.75%,” he told StarBiz.
Casadio said the current OPR level of 2.75% is in the middle of the “normalisation range”.
“This means that we are definitely out of the low interest rate period of emergency and back to normal,” he added.
According to Casadio, Bank Negara should only decide on raising its OPR after evaluating economic conditions next year.
“The recent decrease in the price of oil is pushing down the hardline inflation in the short term and this gives the central bank the opportunity to make the best choice in the new year without feeling pressure at the moment.
“At that time, we will have a better understanding of the gravity of the ongoing international recession and we will see if the financial markets are still fragile.
“All the options on the table should be considered, including a cut in interest rates,” he said.
Source: https://www.thestar.com.my/business/business-news/2022/11/02/another-opr-hike-likely