KUALA LUMPUR: Bank Negara Malaysia has surprised the market by keeping its Overnight Policy Rate (OPR) at 2.75 per cent, but some economists believe that the decision is only a brief reprieve.
They said the central bank was "one or two" hikes away before pausing the normalisation of its key interest rate at pre-pandemic level of 3.25 per cent.
Bank Negara, in its statement yesterday, said the decision allowed its Monetary Policy Committee (MPC) to assess the impact of the cumulative past OPR adjustments, given the lag effects of monetary policy on the economy.
Most analysts had expected Bank Negara to raise the OPR by at least 25 basis points (bps) at the MPC meeting on Thursday, and make another 25bps hike in March before halting its policy normalisation.
Bank Negara said at the current OPR level, the stance of monetary policy remained accommodative and supportive of economic growth.
"Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook," it added.
MIDF Research said Bank Negara was taking a wait-and-see approach to assess the market performances after a total of 100 basis points (bps) increase over four consecutive times last year.
The firm, however, believes the possibility for further normalisation of monetary policy remains given that domestic economic data still showing an upbeat momentum.
"With the rising core inflation trend and stronger-than-expected domestic demand, we expect the central bank to restore its monetary bullets to pre-pandemic levels to 3.00 per cent by March 2023," it said.
Economists deemed the move by Bank Negara as strategic, saying it was good to have a status quo in the monetary policy structure.
Malaysia University of Science and Technology economist Dr Geoffrey Williams said unless there was a big external shock, Bank Negara had no reason to adjust interest rates for now.
"Headline inflation is on a downward trend, core inflation is moderating and we are returning to stable growth rates. The financial sector is sound, loans and repayments are strong.
"There are some risks from the external demand scenario so a pause is wise now. We also need to wait for the budget so this is a good time to wait and evaluate the impact of the earlier rises," he told the New Straits Times.
Geoffrey said there would be fewer domestic shifts and the current policies, such as freezing utilities prices, would reduce domestic pressure. "So again, there will be no need to raise interest rates on this scenario."
Juwai IQI chief economist Shan Saeed agreed that there was no pressing need for a rate hike now as the economy was building momentum.
"Strategically speaking, Bank Negara has played its policy cards well in the last seven to eight years to meet its mandate of price, growth and employment stability in the country.
"Bank Negara has always been well assured of policy outlook which is reflected in ringgit structural stability. Monetary policy stability becomes the hallmark for Bank Negara to meet its mandate in the outlook. The central bank will continue to buttress the economy at the macro level," he said.
Putra Business School MBA programme director Prof Dr Ahmed Razman Abdul Latiff said the decision was driven by sustained pressure and concerns by many parties that a fifth consecutive increment would cause financial hardship to the borrowers.
"Since there is still room to accommodate and sustain the current OPR, Bank Negara's decision seemed to cater more towards domestic concern rather than external factors such as attracting foreign investors to invest in Malaysia, as low OPR might deter them from investing here.
"Therefore there will be no guarantee that the current rate will remain in the next MPC meeting," he said.
Meanwhile, Shan said the ringgit had demonstrated structural stability and appreciated 10.64 per cent since October 2022.
"The local currency will continue its upward movement in 2023 and should be meandering around 4.10 to 4.37 against US dollar with stability becomes in vogue.
"Appreciating ringgit, is another move to tame inflationary pressure in the economy," he added.
According to Bank Negara, the global economy continued to be weighed down by elevated cost pressures, higher interest rates and Covid-19-related disruptions in China.
These factors more than offset the support from positive labour market conditions, and the full reopening of economies and international borders.
"Headline inflation moderated slightly from high levels in recent months. However, core inflation remains above historical averages.
"Central banks are expected to continue raising interest rates, albeit at a slower pace, to manage inflationary pressures. This will continue to pose headwinds to the global growth outlook," it said.