KUALA LUMPUR (May 21): CGS-CIMB Research is expecting Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) at 1.75% for the rest of 2021.
In a note today, the research house reiterated its annual inflation forecast for 2021 at 3.1% year-on-year (y-o-y) against the 2.5% to 4% inflation predicted by the central bank.
CGS-CIMB Research said it believes the trend divergence in headline and core inflation to persist despite the country’s headline inflation accelerating to a four-year high of 4.7% y-o-y last month.
“This is owing to cost-push inflation clashes with an economy still operating below potential, serving as justification for a cautious stance on monetary policy normalisation until clearer signs of progress towards Covid-19 containment and vaccination emerge.
“Also, a more entrenched gross domestic product (GDP) and labour market recovery are timed for the first quarter of 2022,” it said.
Hence, the research house anticipates the Central Bank to maintain the OPR at 1.75% over the next 11 months, before beginning the process of policy normalisation in May 2022.
“We forecast an end-2022 OPR of 2.5%,” it said.
Sharing a similar view, United Overseas Bank (M) Bhd (UOB Malaysia) expects the Central Bank to put the benchmark interest rate on hold for the rest of the year.
This comes following its unchanged expectations of a robust GDP growth of 6% to 7.5% for 2021, despite a nationwide Movement Control Order (MCO 3.0) and a transitory price increase.
“In addition, real interest rate has turned negative for the first time since December 2017 last month, while underlying inflation remains muted with continued spare capacity in the economy.
“BNM is seen favouring targeted financial and non-financial assistance to help affected sectors to weather the ongoing pandemic,” it said in a separate note today.
According to UOB Malaysia, the year-to-date inflation implied that its full-year inflation target of 3%remained achievable, while headline inflation is projected to reverse course and come off below 4% from June onwards.
“Rising pandemic-related risks and a weak labour market would continue to mitigate the impact of supply-led inflationary pressures, keeping overall inflation in check.
“While the reintroduction of a nationwide MCO 3.0 and potential tightening of containment measures could lead to a further extension of selective government supportive initiatives such as sales tax exemption for passenger vehicles and electricity bill discount, if any, will help temper the inflation uptrend,” it said.
The Department of Statistics Malaysia announced today that Malaysia’s consumer price index (CPI), an indicator of inflation, rose 4.7% y-o-y in April 2021 from 1.7% y-o-y in March 2021.
Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said inflation was driven by an increase in the index of transport (27%) due to the low base effect from the preceding year.
He expects the uptrend to continue until the first quarter of 2022.
