Inflationary pressures as well as improving economic conditions give the impression that Bank Negara Malaysia (BNM) is expected to raise rates soon.
The matter has been studied by several economists after the US Federal Reserve (Fed) acted to implement a rate hike by 50 basis points on Thursday.
Julia Goh, senior economist at UOB's Global Economic and Market Research, expects BNM to also be on the verge of raising the Overnight Policy Rate (OPR) based on improving economic conditions and price pressures.
Terang Goh, the outlook for gross domestic product (GDP) growth to rise 5.3% to 6.3% then the negative output gap is expected to narrow, and it indirectly serves as a signal for potential rate hikes.
Therefore, Goh expects the OPR to rise by 25 basis points to 2% on May 11 and followed by another 25 basis points increase in the 3rd quarter of 2022 (3Q2022), which will bring the OPR to 2.25% by the end of 2022.
In addition, economics professor at Sunway University Business School, Dr Yeah Kim Leng also noted that both growth momentum and rising inflationary pressures enabled BNM to begin the process of interest rate normalization at the beginning of the second half.
Add Yeah, although raising interest rates could help the weakening ringgit, the decision will largely ensure a good balance between growth and inflation, while minimizing financial stability risks.
On the other hand, OCBC economist Wellian Wiranto opined that BNM would indeed raise rates in the second half, expected as early as July but only slightly at 25 basis points.
According to Wiranto, the rate hike by the Fed is something that all central banks in the market, including BNM, have to face.
However, the direct impact on Malaysia is relatively lower as Malaysia's current account surplus status is less dependent on global yields and investor sentiment.
Citing data from the Ministry of International Trade and Industry (MITI), Malaysia's trade in March increased 10.3% year -on -year to RM26.7 billion, so on this basis Wiranto said inflation remained moderate.
The matter was backed by Moody Analytics assistant director Denise Cheok who bet that BNM would raise rates in the 3Q2022 quarter by 25 basis points.
Cheok opined that Malaysia's inflation was modest compared to its regional counterparts, and the central bank was likely to prioritize economic recovery to pre-pandemic levels over capital outflows and currency depreciation.
Even so Cheok added that the price increase comes from food and fuel, which are basic necessities, therefore it will affect consumers.
Terang Cheok, Malaysia has the highest household debt to GDP ratio in the region, even before the Covid-19 pandemic again and the low interest rate environment will prevent debt service from becoming a systemic concern and consuming consumer spending.
