PETALING JAYA: Bank Negara Malaysia (BNM) is expected to hike its overnight policy rate (OPR) by 50 basis points (bps) to 2.25% in 2022 to rebuild policy buffers and maintain ringgit stability.
According to Fitch Solutions Country Risk and Industry Research, the central bank seeks to ensure the stability of the ringgit and maintain its real interest rate differential over the US, which is now likely to begin hiking in 2022 rather than in 2023.
“The inflationary pressures are building, while the BNM does not have a numeric inflation target, it is still mandated to maintain price stability. We continue to see some upside risks if major central banks around the world were to tighten monetary policy even quicker than we currently expect due to growing and underlying inflationary pressures,“ it noted in a statement.
BNM decided at its monetary policy committee meeting to hold its benchmark OPR at 1.75% on Jan 20.
“In the statement accompanying the decision, BNM highlighted uncertainties surrounding the global economy noting that while the ‘global economy continues to recover’, risks such as ‘the emergence of new variants of concern, risks of prolonged global supply disruptions, and risks of heightened financial market volatility amid adjustments in monetary policy in major economies’, remained.
“The government expects growth to range between 5.5% and 6.5% in 2022, against our forecast of 5.5% growth, and the stronger growth picture will provide the central bank space to hike to head off inflationary pressures and rebuild policy space.
“We have revised our average inflation forecast for 2022 upward to 3.3% compared to our 2.5% estimate for 2021. The main driver of inflation in 2022 will likely be higher average oil prices and higher input costs as economic activity normalises. Our oil & gas team now expects Brent crude oil prices to average slightly higher at US$72 (RM301.68) per barrel (bbl) in 2022, compared to US$70.95/bbl in 2021,“ it noted.
Besides, the consumer price index also surged by 12.6% year-on-year (y-o-y) in November 2021, marking the eighth consecutive month of double-digit increase, and this will likely feed through into higher consumer prices in the coming months.
“Risks to our interest rate forecast are slightly tilted to the upside. A surge in inflation could prompt the central bank to accelerate the rate hiking cycle in 2022 to ensure positive real interest rates and rebuild policy buffers in anticipation of global monetary policy tightening.
“The contingency becomes more likely if major central banks accelerate their rate hiking cycle, perhaps in response to a swifter increase in inflation than they currently anticipate.
“Although there remains the possibility of another negative shock to the economy from an emergence of another variant of concern that causes greater strain on the healthcare sector, the high vaccination rates should prevent another largescale lockdown similar to the full movement control order imposed from June to October 2021,“ it noted.