KUALA LUMPUR: Bank Negara Malaysia is expected to keep its overnight policy rate (OPR) unchanged at 3.00 per cent this year, OCBC Bank said.
The Singapore bank is cautiously optimistic on Malaysia's growth prospects and expect inflation to be manageable this year.
Bank Negara keeping its policy rate unchanged was in line with expectations, OCBC senior Asean economist Lavanya Venkateswaran said.
"There were limited changes to Bank Negara's outlook on global growth, domestic growth-inflation drivers and the currency compared to its Nov 2 2023 meeting.
"Bank Negara assessed that the risks to global growth remained to the downside even though it cited 'further signs of recovery in the electronical and electronics' sector."
On the domestic front, she said Bank Negara looked through the weaker fourth quarter 2023 advance gross domestic product (GDP) print and remained of the view that 2024 growth will improve driven by household spending, tourism and broad-based investment activities.
"This is similar to our view," she remarked.
She said the inflation outlook remains less certain although it is expected to
remain "modest" and broadly reflect "stable cost and demand conditions".
"The main unknown is domestic policy changes. To that end, we believe that the timing and mechanism with regards to the implementation of targeted fuel subsidies will be crucial to watch going forward."
On the currency, she said that the central bank had maintained that moves
in the ringgit were driven "by external factors, and not reflective of the current
domestic economic performance and prospects".
MIDF Research agrees that the OPR will stay status quo throughout 2024.
The focus of Bank Negara's monetary policy setting is to ensure a sustainable growth momentum of Malaysia's economy.
"Even though recovery mode, external environment to stay challenging in 2024 amid geopolitical tensions and potential slower global growth."
The firm added that domestic economic outlook is predicted to stay vigilant and resilient underpin by steady domestic demand.
However, stabilisation of core inflation rate and challenging external environment may influence Bank Negara to keep OPR at current levels throughout 2024.
MIDF Research said the decision will be subjected to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions, particularly a continued recovery in the labour market and growing domestic demand.
"From a medium-term perspective, the policy rate normalisation is needed to avert risks that could destabilise the future economic outlook such as persistently high inflation and a further rise in household indebtedness," it added.