Malaysian economy to pick up in 2022


MOODY’S Analytics views that the outlook for Malaysia’s economy is looking up into 2022.

“As such, we expect BNM to pull the trigger on a rate hike in the second half of next year,” it further said.

Bank Negara Malaysia (BNM) has maintained its overnight policy rate (OPR) at a historic low of 1.75%, as domestic economic activity took a hit in the third quarter due to movement restrictions, Moody’s Analytics said, which is in line with its forecast.

“The central bank also reiterated its accommodative stance in the wake of pandemic-induced risks such as supply-chain disruptions and the reinstatement of restrictions from new variants of Covid-19,” the firm said.

According to Moody’s, BNM had previously unleashed a slew of rate cuts between January and July 2020.

However, several factors are now nudging BNM towards monetary normalisation in the second half of next year,” it said.

Among the factors are inflation pressures which steadily compound supply-chain disruptions and rising commodity prices.

“September’s consumer price index (CPI) came in slightly above market expectations with a 2.2% year-on-year (YoY) increase on the back of higher food and utility prices,” it noted.

Meanwhile, oil prices are expected to surge even further towards the beginning of next year as global demand ramps up into the northern hemisphere’s winter months.

“Although BNM expects core inflation to remain ‘benign’ given the Malaysian economy’s spare productive capacity, rising global prices might push the central bank to a rate hike,” it pressed.

Other factors also included Malaysia poised to fully reopen by the first half of next year due to the high vaccination rate of 75% of the total population.

“Domestic and international travel have recently been allowed for fully vaccinated citizens, and restrictions on the economically vital Klang Valley have largely been lifted.

“Manufacturing has picked up as a result, and the IHS Markit PMI reached expansionary territory in Oct at 52.2 for the first time since May,” it said.

Besides, sizable fiscal spending also contributes to the factors which will bear some of the weight as the economy emerges from the pandemic.