KUALA LUMPUR: Bank Negara Malaysia is likely to keep its overnight policy rate (OPR) unchanged at 1.75 per cent until at least the second half of 2022 (2H22), Kenanga Research said.
The firm said over the past month, the government had reopened most sectors of the economy as the domestic Covid-19 situation improved significantly on the back of high vaccination rate and better compliance to the standard operating procedures.
"As of November 8, all states are in the final phase of the National Recovery Plan except for Sarawak and Kelantan.
"Moving ahead, to prop up the ongoing recovery progress, we reckon that Bank Negara will continue its loose monetary policy and keep the OPR unchanged until at least September (fifth meeting for 2022)," it said.
Kenanga Research said despite rising optimism surrounding the outlook for the domestic economy in 2022, the local note was expected to weaken from its current level.
The firm expects the US dollar index (DXY) to maintain a foothold above the 94.0 level in the next few months amid the US Federal Reserve's tapering decision.
"However, the greenback has the potential to soften if other major central banks begin to tighten their monetary policy earlier than the Fed.
"Regardless, the ringgit will continue to be supported by the stabilising crude oil prices and a potential improvement in the upcoming domestic macroeconomic figures," it added.
Meanwhile, Kenanga Research noted that Bank Negara's international reserves had rebounded 0.8 per cent month-on-month (MoM) in October to US$116.1 billion.
The increased amount is sufficient to finance 8.1 months of retained imports and is 1.3 times total short-term external debt.
The firm said the increase was mainly attributable to an increase in the foreign currency reserves.
"Foreign currency reserves (up US$0.8 billion or 0.8 per cent MoM to US$103.3 billion): fastest growth in six months, partly due to a slight fall in the DXY on a MoM basis.
"Other reserve assets (up US$0.1 billion or 1.8 per cent MoM to US$3.1 billion): reverted into an uptrend. Gold (up US$0.04 billion or 2.0 per cent MoM to US$2.2 billion): largest holdings in eight-months," it said.
The firm said in ringgit terms, the value of the reserves hit a new record high of RM486.2 billion despite a stronger average DXY of 93.9 in October.
The ringgit extended its gains by 0.1 per cent against the dollar amid elevated Brent crude oil price and improving Malaysia macroeconomic figures.
"The local note was also supported by the positive sentiment surrounding the gradual reopening of the domestic economy, improving Covid-19 situation and the tabling of 2022 Budget," Kenanga Research said.