OPR Status Quo Appropriate, Rate Normalisation Possible In 2027 – Economists
By Rosemarie Khoo Mohd Sani
KUALA LUMPUR, Nov 5 (Bernama) -- Bank Negara Malaysia's (BNM) decision to maintain the Overnight Policy Rate (OPR) at 2.75 per cent is appropriate given the country's resilient economic growth and contained inflation, although a rate normalisation remains possible in 2027, economists said.
SPI Asset Management managing partner Stephen Innes said Malaysia's economy is growing above five per cent, supported by strong exports amid the global technology cycle and resilient domestic demand, while inflation remains contained.
"That's a fairly comfortable position for any central bank to be in," he said.
Innes said the possibility of BNM raising the OPR to three per cent in 2027 to reverse last year's rate cut should not be ruled out, particularly if higher energy and food costs begin to feed into broader consumer prices.
However, he said policymakers are unlikely to rush into an adjustment, as the central bank will also assess the United States Federal Reserve's monetary policy direction beyond December.
"I don't think today's statement suggests policymakers are in any particular hurry. They're keeping their options open rather than putting a rate hike on the calendar," he said.
On the ringgit, Innes said its near-term performance will be driven more by movements in the US dollar and US Treasury yields than by BNM's latest OPR decision.
"A modestly hawkish BNM provides a useful floor for the currency, but if US yields continue to retreat and oil prices remain under pressure, the ringgit could find support without Bank Negara having to lift a finger," he said.
He expects BNM to remain patient into early 2027, describing a potential return to a three per cent OPR as policy normalisation rather than the beginning of an aggressive tightening cycle.
Meanwhile, AmBank Group chief economist Firdaos Rosli said Malaysia's strong economic growth over the past year provided a legitimate case for rate normalisation. Nevertheless, the composition of growth has to be considered.
He said recent expansion was supported significantly by strong electrical and electronics (E&E) trade, which did not necessarily translate into domestic demand-driven inflation.
"The issue here is not that domestic demand is growing but whether it is strong enough to create demand-driven inflation," he said.
Firdaos said strong external demand could be non-inflationary and the decision to maintain the OPR is appropriate, while Budget 2027 is expected to support domestic demand next year.
"Growth is likely to remain healthy but not necessarily booming to necessitate a hike," he said.
On the inflation outlook, he said much of the anticipated pressure from supply-side factors is beyond the government’s and BNM's control. He cautioned that raising interest rates in response could further constrain economic growth.
"A hike in such a scenario will only suffocate growth further," Firdaos said.
He also said BNM should not adjust interest rates solely in response to rising bond yields and that monetary policy decisions should take a broader and forward-looking view of domestic demand conditions.
"Demand management needs a holistic, forward-looking view in rate setting, and should not respond to selective indicators only," he added.
BNM has maintained the OPR at 2.75 per cent today following its final Monetary Policy Committee (MPC) meeting.
In a statement, the central bank said the latest indicators pointed to continued resilience in global growth, supported by strong global technology investment and stable labour markets.
-- BERNAMA