BNM’s OPR hike sends positive signal to the market


BANK Negara Malaysia’s (BNM) had decided to raise its benchmark interest rate by 25 basis points (bps) to 2% from a historic low of 1.75% to cool inflationary pressures as the country continues to recover from the lockdown.

Centre for Market Education CEO Dr Carmelo Ferlito said that the higher interest rates are expected to discourage private investments and consumption.

“In this way, the amount of money in circulation is reduced and therefore inflation is expected to recede,” Ferlito said in a statement yesterday.

However, he noted that interest rates are lowered during a depression in an attempt to revive both investments and consumption.

“Interest rate is only one element entering the formation of those expectations (as a higher cost of borrowing).

“But, if entrepreneurs are optimistic about the economic momentum, they may not be discouraged by rising interest rates,” he said.

He stressed that the interest rate hike has to be seen not as a mechanical tool but as a signal launched to the market.

“Its consequences will depend on how market players interpret that signal,” he noted.

Meanwhile, AmInvestment Bank Bhd (AmInvest) research analyst Kelvin Ong said that BNM’s Overnight Policy Rate (OPR) was earlier than its expectation in the second half of 2022 (2H22).

“The accelerated move appears to be in response to other central banks globally which have started to tighten monetary policies to lower inflationary pressures,” Ong said in a report today.

The analyst said that the rate hike is seen as the beginning of the easing in Malaysia’s monetary policy accommodation.

Moreover, the pace of further rate hikes is expected to hinge on signs of further improvement in GDP growth in the subsequent quarters.

“Also, it will depend on whether there will be further escalation of inflationary pressures coming from the developments in the Russia-Ukraine war and the movement restriction measures in China affecting supply chains,” he noted.

As for now, AmInvest is expecting another rate hike of 25bps bringing the OPR higher from 2% to 2.25% in 2H22. 

AmInvest also retains its ‘Overweight’ stance on the sector with its top ‘Buy’ being RHB Bank Bhd (fair value [FV] RM7.30 per share), CIMB Group Holdings Bhd (FV RM6.60 per share) and Malayan Banking Bhd (FV RM10 per share).

“We remain positive on the sector due to the interest rate uptrend cycle which will benefit banks in terms of interest income as well as room for potential write-backs in management overlays going forward,” he added.

Separately, CGS-CIMB Research’s analyst Winson Ng expects the OPR hike to be positive for banks as their total floating-rate loan is larger than their total fixed deposits.

“With this, our economist increased his expectation for the magnitude of the OPR hike in 2022F from 50bps to 75bps,” he said.

However, the expectation of an OPR hike of 75bps in 2022F could be negative for banks’ loan growth and asset quality as this spells higher borrowing costs.

Nevertheless, AmInvest reiterated its ‘Overweight’ call on banks and opined that the OPR hike would help to offset the negative impact from the higher taxation under Cukai Makmur in FY22F and supports its expectation for continuous earnings recovery in 2022F.

Its top picks for the sector are Hong Leong Bank Bhd, RHB Bank and Public Bank Bhd.