Malaysia: Bank Negara Malaysia pauses hiking cycle at first 2023 meeting
At its meeting on 18–19 January, the Monetary Policy Committee of Bank Negara Malaysia (BNM) kept the overnight policy rate (OPR) unchanged at 2.75%, defying market expectations of another 25 basis point increase. January’s decision marked the first hiking pause after a cumulative 100 basis point increase over the past four meetings.
The Bank’s decision was based on the need to assess the impact of its previous policy adjustments, given their lagged effects on the economy and inflation. That said, as inflation peaked in Q3 2022, concerns over economic growth likely took precedence over cooling inflation and pushed the Bank to halt its hiking cycle earlier than expected. The economy is seen decelerating this year, with household spending remaining the key engine of growth. Meanwhile, a tangible drop in exports growth in the fourth quarter hinted at a looming global downturn and likely motivated the dovish move: A deterioration in the external sector could dampen domestic demand by raising the unemployment rate and capping wage growth. To shield the economy from this potential downside risk, the BNM maintained the OPR at an accommodative level.
In its communiqué, the Bank stated that it will “continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth”. The BNM will, consequently, continue to walk a thin line between taming inflation and supporting economic growth amid a highly volatile external landscape. The Consensus among the FocusEconomics panelists is for about 50 basis points of additional monetary policy tightening this year.
On the outlook, Debalika Sarkar and Jennifer Kusuma, economists at ANZ, commented:
“In our view, the government’s decision on the fuel subsidies will remain a key factor for future central bank policy decisions. But it is unlikely to be seen before the unveiling of the new Budget in late February. Our current forecast of the terminal rate stands at 3.50%, but the BNM’s decision today has opened up downside risks.”
In contrast, Euben Paracuelles and Rangga Cipta, analysts at Nomura, already see the hiking cycle as having ended:
“We maintain our view that BNM has already reached the end of its hiking cycle with the terminal rate at 2.75%. In the near-term, we think the next MPC meeting in March will again be a pause because it simply takes time for BNM’s goal mentioned today to take stock of the impact of previous rate hikes. Beyond that, growth and inflation will likely continue to decline materially based on our forecasts, suggesting BNM will stay on-hold for longer.”
The BNM’s next meeting is scheduled for 8–9 March.