Rate hike coming this month for Malaysia?

SINGAPORE - Bank Negara Malaysia (BNM) is expected to increase the Overnight Policy Rate (OPR) by 25bps to 3.25% at its January 25 meeting, ANZ Bank reports, adding that even with this increase, the overall monetary policy stance will still be accommodative, as real rates remain at negative levels.

With GDP growth accelerating in 2017 to 6.0% and forecast to stay strong at 5.8% for 2018, inflation pressures will emerge, ANZ says. ´Higher oil prices will put further upward pressure on inflation, which at 3.9% for 2017 is at the top end of BNM’s forecast range and likely to stay elevated in 2018.

“Therefore, further removal of monetary accommodation will likely be required later in the year. We expect another 25bp hike at the September meeting to take the OPR to 3.50%, a level last seen in November 2008.”

“Higher oil prices, if sustained, will improve Malaysia’s external and fiscal position. Alongside stronger domestic growth and higher interest rates, this will be supportive of the ringgit,” ANZ says.

“Malaysia has to hold a general election on or before 24 August. History suggests that the ringgit tends to perform well during the period leading up to a general election. Hence, ringgit outperformance look set to continue, especially if we see a return of foreign portfolio investment flows.”  www.live.anz.com (ATI).