Will Bank Negara Malaysia (BNM) keep its overnight policy rate (OPR) at its current level for a longer period?
The recent pause in rate hikes by the central bank bodes well for overall housing demand, particularly for affordable to mid-range properties where purchasers are more interest-rate sensitive.
According to a real estate expert, any future rate hikes may dampen the spirits of purchasers wanting to acquire their first or second home.
"Although another 25 basis point (bps) increase may appear to be a minor amount, it will add to homebuyers' concerns, especially at a time when individuals are attempting to save where they can, amid current market issues, inflation, and rising cost of living.
"The greater the OPR, the more expensive borrowing money becomes, which can have a significant influence on the housing sector. Although the OPR has recently increased, it is still reasonable for buyers or those seeking new home loans. Meanwhile, a reduction in OPR favours consumers who have variable-rate house loans," he told NST Property.
Datuk NK Tong, president of the Real Estate and Housing Developers' Association Malaysia (Rehda), had said that Bank Negara is doing a good job of managing inflationary pressures in the country by maintaining the OPR relatively constant.
He said that interest rates in Malaysia are significantly more modest.
"With the economy opening up, I think at some point people will have to make a commitment into certain assets that protect themselves against inflation in the long run, one of which will be real estate," he said.
Tong argues that, while an increase in OPR may be perceived as a headwind, people will soon recognise that real estate helps protect the value of their assets and keeps up with inflation.
As of January 2023, Bank Negara has maintained the OPR rate, which now stands at 2.75 per cent - a 0.25 per cent hike compared to its previous rate of 2.50 per cent from September 2022.
Maybank Investment Bank (Maybank IB) anticipates another 25 basis point (bps) increase to return OPR to the pre-COVID-19 level of 3.00 per cent, with its sights set on the next three Monetary Policy Committee (MPC) meetings this year on May 2-3, July 5-6, and September 6-7.
According to the statement, BNM opted to remain in "hold" mode because MPS indicated that it is still assessing the effects of last year's total 100bps OPR raises, given the lag effect of monetary policy on the economy 12 to 18 months after the start of the OPR hike cycles in May 2022.
"MPS also retains the words 'further normalisation', implying the current pause does not mean the end of the OPR hike cycle. The MPS added that it is keeping an eye on cost factors, including those arising from financial market development, that could affect inflation outlook," Maybank IB said in its Economics report.
Hong Leong Investment Bank expects BNM to raise the OPR by another 25bps as early as May, bringing the rate to 3.00 per cent by the end of the year.
"According to the MPC, the current stance of monetary policy remains accommodative and supportive of economic growth. However, the committee did mention that it will remain vigilant to cost factors, including those arising from financial market developments, which could affect the inflation outlook," it said in its Economics report.
CGS-CIMB Securities has also maintained its forecasted OPR of 3.25 per cent for the end of 2023, with a halt in 1H 2023F and two 25bps hikes in 2H 2023F.
According to the firm's note, BNM should turn hawkish in 2H 2023F due to several factors, including China's reopening, which has finally resulted in a turnaround in its economy with a strong pickup in the February purchasing managers index, alluding to positive spillover effects towards global growth.
Meanwhile, Public Investment Bank believes that, with subsidies still in place, BNM will likely maintain its wait-and-see posture by pausing and keeping the OPR constant at 2.75 percent at the May MPC meeting.
"While the future decision will be data-dependent, we see the likelihood of another 25bps rate hike to 3.00 per cent in the second half of 2023 (2H 2023), within its pre-pandemic level, but this hinges on possible fuel subsidy rationalisation in 2H 2023," it said in a note.