Bank Negara Malaysia (BNM) Interest Rate Decision
Bank Negara Malaysia (BNM) is likely to keep its overnight policy rate (OPR) unchanged at 2.75% in the first half of 2023, according to research houses. Public Investment Bank Bhd predicts that another 25 basis points rate hike to 3.0% could occur in the second half of 2023, but this depends on domestic policy measures such as the possible introduction of a targeted fuel subsidy and price controls as well as global commodity price developments.
On Thursday, BNM kept its OPR at 2.75% during its first Monetary Policy Committee (MPC) meeting of the year, defying market expectations of a 25 basis points rate hike to 3.0%. This ended the streak of 25 basis points rate hikes that occurred at the last four MPC meetings in 2022.
BNM has stated that any future changes to the OPR will depend on how the domestic economy performs and the implications of this on the domestic inflation and growth outlook. In light of this, Public Investment Bank believes that the focus has changed slightly to aiming for sustainable economic growth within BNM’s dual mandate to strike a balance between stable inflation and economic growth.
Impact on Banks
CGS-CIMB Research notes that a big question now is the central bank’s next move as BNM has stated that it is “not quite done” with raising interest rates and that the decision to pause the hike was to “assess the impact of the cumulative past OPR adjustments”. The research firm believes that there are uncertainties ahead with the increasingly dovish central banks’ stance globally, new Malaysian Budget 2023 being announced in February, and China’s recent reopening.
Maybank Investment Bank states that every 25 basis points hike or reduction in the OPR impacts banks’ net interest margins by 2.0-3.0 basis points on average. The investment bank expects that cumulative net profit is expected to rebound by 16.0% year-on-year in the absence of Cukai Makmur.
