KUALA LUMPUR: Bank Negara Malaysia is likely to maintain the overnight policy rate (OPR) which determines lending costs, at 3 per cent until 2026, before it starts cutting, according top BMI Research.
BMI is a unit of Fitch Solutions.
"Benign inflation and a robust growth outlook suggest that the Bank can afford to leave the OPR at its current level for a prolonged period of time," it said in a note today.
It expects BNM to onlly cut rates in 2026.
"Further implementation of subsidy rationalisation plans could push up domestic prices and prompt policymakers to embark on their easing cycle," it added.
Policymakers in Malaysia left the OPR on hold at 3 per cent for the eighth consecutive meeting in September.
BMI said forward guidance provided by the latest policy statement was essentially unchanged, which reaffirmed itsbelief that Malaysia's resilient growth outlook and benign inflation will provide the BNM the room to keep rates where they are.
BMI said BNM has little to worry on the currency front with its expectations for the US Federal Reserve to implement a cumulative 125 basis points cut this year and next, which will bring policy rate down to 4.25 per cent at the end of 2024 and 3.00 per cent at the end of 2025, respectively.
"Narrowing interest rate differentials between the US and Malaysia will continue to act as a tailwind for the Malaysian ringgit, which is the best-performing emerging market currency in the region," it said.
BMI said BNM's confidence in the economy remains intact, citing that exports are expected to be further lifted by the global tech upcycle.
Exports emerged as one of the key growth drivers in the second quarter of 2024 which prompted us to raise our 2024 real gross domestic product (GDP) growth forecast to 4.7 per cent, from 4.4 per cent.