Economic Analysis - BNM To Hike Rates By 25bps In 2018 - JAN 2018


BMI View: BNM ' s decision to keep the OPR on hold at 3.00% during its monetary policy meeting on November 9 was in line with our expectations and we expect the central bank to hike interest r ates by 25bps to 3.25% in 2018 on the back of an improving economic outlook and to pre-empt rising inflation.

In line with our expectations, Bank Negara Malaysia (BNM) held its Overnight Policy Rate (OPR) at 3.00% during its monetary policy meeting on November 9 (its last meeting of 2017), and we expect the central bank to hike interest rates by 25 bps in 2018, which will take the OPR to 3.25%. In its monetary policy statement, BNM opened the door to monetary tightening, noting that 'the Monetary Policy Committee may consider reviewing the current degree of monetary accommodation' due to 'the strength of the global and domestic macroeconomic conditions'. The Malaysian ringgit remains on a gradual appreciatory trajectory while growth remains on a firm uptrend. We also believe that inflation is likely to trend higher in 2018 when the effects of increased handouts in the 2018 budget start to kick in. This, in addition to stronger growth, will thus prompt BNM to hike rates to keep inflation under control and ensure that the economy does not overheat.

Strong Growth Outlook To Enable BNM To Tighten

BNM Set To Embark On Monetary Tightening
Malaysia - Central Bank Decision
Source: BMI, Bloomberg

This article is part of our South East Asia Vol 2 coverage. To access this article subscribe now or sign up for free trial