Analysts predict BNM to keep policy rate unchanged through 2024

As widely anticipated, BNM opted to hold the OPR at 3% during its 4th meeting of the year

by RUPINDER SINGH

ANALYSTS and economists anticipate that Bank Negara Malaysia (BNM) will maintain its policy rate unchanged at 3% for the remainder of the year, following the central bank’s decision to keep the Overnight Policy Rate (OPR) steady at 3% in the July 2024 Monetary Policy Committee (MPC) meeting.

“We believe that maintaining the current monetary stance for an extended period will help control inflation, particularly after the rationalisation of diesel subsidies in June and uncertainties surrounding the targeted subsidy for RON95,” said Kenanga Investment Bank Bhd (Kenanga Research) in a recent report.

It noted that government initiatives like Budi Madani and potential increases in cash transfers — contingent upon RON95 price adjustments — are expected to mitigate the impact of inflation on households.

As widely anticipated, BNM opted to hold the OPR at 3% during its fourth meeting of the year, aligning with the unanimous forecast of all 22 respondents in the latest Bloomberg consensus survey.

This marks the seventh consecutive meeting where BNM has maintained the OPR unchanged, following a surprise hike in May 2023.

“Given MPC’s neutral statement, we maintain our outlook that BNM will keep its policy rate at 3% for the remainder of the year and potentially into 2025.

“This stance aims to bolster domestic growth, which remains susceptible to global uncertainties such as China’s economic recovery, potential slowdowns in advanced economies amid higher interest rates and escalating geopolitical tensions including the ongoing Red Sea crisis affecting global port congestion and renewed US-China relations,” Kenanga Research added.

Meanwhile, UOB Group Global Economics & Markets Research noted a neutral tone in the latest MPC statement, affirming its expectation of a stable OPR at 3% through the end of the year.

“BNM’s unchanged forward guidance since September 2023 indicates comfort with current monetary settings, suggesting no immediate need for policy adjustments,” it said.

UOB also highlighted coordinated initiatives by authorities expected to support the ringgit towards year-end, especially as the Federal Reserve is anticipated to commence a rate-cutting cycle in September.

The ringgit has rebounded from its February lows following measures by BNM and the government to encourage government-linked companies (GLCs) and government-linked investment companies (GLICs) to repatriate and convert foreign investment income into local currency more consistently.

According to MPC, BNM will continue managing risks stemming from heightened financial market volatility, with structural reforms aimed at providing stronger support for the ringgit over the medium term.

The research house reiterated its forecast for the local currency to reach 4.60 against the dollar by the fourth quarter of 2024.

It cautioned, however, that unforeseen factors affecting OPR and forex predictions could arise from domestic policy changes, emerging geopolitical risks and China’s economic performance.

Hong Leong Investment Bank Bhd (HLIB Research) echoed BNM’s expectation of higher inflation in the second half of 2024, driven by recent diesel subsidy rationalisation.

Nonetheless, it believes inflationary pressures will remain manageable, supported by ongoing subsidies for logistics and public transport sectors under the SKDS2.0 initiative.

BNM maintains its 2024 headline inflation growth forecast of 2%-3.5% year-on-year (YoY).

Looking ahead, HLIB Research highlighted potential inflationary risks dependent on further subsidy adjustments, global commodity prices and financial market developments.

The MPC is scheduled to convene next on Sept 4-5, approximately two weeks before the Federal Open Market Committee meeting on Sept 17-18.