Malaysia: Fitch Solutions: Bank Negara still on track to hike OPR in 2022

KUALA LUMPUR (Jan 24): Fitch Solutions Country Risk and Industry Research said Monday (Jan 24) that it continued to expect Bank Negara Malaysia (BNM) to hike its overnight policy rate (OPR) by 50 basis points to 2.25% in 2022, in order to rebuild policy buffers and maintain ringgit stability.

The affiliate of Fitch Ratings Inc said in a note that the BNM may seek to maintain its real interest rate differential over the United States, which is now likely to begin hiking in 2022 rather than in 2023.

Moreover, inflationary pressures are building while the BNM does not have a numeric inflation target, it is still mandated to maintain price stability, it added.

It also said the Malaysian economy is likely to post a robust recovery in 2022, for which it forecast 5.5% real gross domestic product growth, providing the central bank with sufficient policy room to normalise its monetary policy.

“We continue to see some upside risks if major central banks around the world were to tighten monetary policy even quicker than we currently expect due to growing underlying inflationary pressures,” it said.

BNM had on Jan 20 decided at its monetary policy committee meeting to hold its benchmark OPR at 1.75%.

Meanwhile, Fitch Solutions has revised its average inflation forecast for 2022 upward to 3.3% compared to its 2.5% estimate for 2021.

The main driver of inflation in 2022 will likely be higher average oil prices and higher input costs as economic activity normalises, it said.

Its oil and gas team now expects Brent crude oil prices to average slightly higher at US$72 (RM301.36) per barrel (bbl) in 2022, compared to US$70.95/bbl in 2021.

Edited by Joyce Goh