08/11/2022 01:19 PM

KUALA LUMPUR, Nov 8 (Bernama) -- Standard Chartered Bank Malaysia Bhd (StanChart) is projecting Bank Negara Malaysia (BNM) to hike interest rates again in January next year by 25 basis points (bps), followed by a pause in March, before a final 25 bps hike in May.

This would bring the terminal policy rate to 3.25 per cent, it said in its Global Research note today.

Previously, the bank had expected a pause after November’s 25 bps hike until a final 25 bps hike in the third quarter (Q3) of 2023, with a terminal rate of 3.00 per cent.

The bank noted that amid continued strong economic recovery, inflation has broadened further, albeit suppressed by subsidies. 

"Wages are rising although there are no signs of a wage-price spiral. 

"As a result, we raise our terminal rate hike projection to 3.25 per cent from 3.00 per cent but is keeping our view that the central bank may stick to 25 bps increments despite more aggressive rate hikes by major central banks," StanChart said in its research note. 

Its May hike call is premised on potential subsidy changes in the second half (H2) 2023, which may require another rate hike especially if domestic demand remains strong. 

It is of the view that the latest November monetary policy statement by the central bank was supportive of its January rate hike call. 

The bank further said BNM saw risks to the 2023 inflation outlook with an upside tilt.

In addition, it noted that the central bank kept its upbeat view on domestic demand and that the current monetary policy is accommodative and supportive of economic growth. 

“These references suggest further tightening may be in order,” it added.

Having said that, it noted that BNM had reiterated that the monetary policy committee is not on any pre-set path.

"Importantly, the central bank added a new nuance in November, suggesting that the latest 25 bps hike may be pre-emptive in nature. 

"On balance, we see room for BNM to at least reverse COVID-induced rate cuts (the pre-COVID policy rate was 3 per cent), before a pause," StanChart said. 


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