MIDF Believes BNM Could Keep OPR Rate At 3% For 2024

BNM kept the Overnight Policy Rate (OPR) at 3.00% following its fourth Monetary Policy Committee (MPC) meeting in 2024, the decision by the MPC MIDF said was aligned with its predictions and market consensus.

According to the recent Monetary Policy Statement (MPS), the global economic expansion is expected to continue, driven by resilient labour markets and recovery in global trade. The MPS foresee sustained global growth, albeit facing headwinds from tight monetary policies and reduced fiscal support, offset by positive labour market conditions and moderating inflation. Global trade to strengthen among others due to the ongoing tech upcycle. Also, some central banks are shifting to monetary easing as headline and core inflation edge downwards. On the flip side, BNM highlighted ongoing risks including heightened geopolitical tensions, potential pick-up of inflation, and increased volatility in the global financial marketsMIDF noted that the focus of BNM's monetary policy setting is to ensure a sustainable growth momentum in Malaysia's economy.

Even though we expect external trade to recover, external environment stays challenging in 2024 amid ongoing geopolitical tensions and potential slower global growth. Domestic economic outlook is predicted to remain vigilant and resilient underpinned by steady domestic demand. However, the house believes the stabilisation of core inflation and challenging external environment may influence BNM to keep OPR at current levels throughout 2024.The decision however, 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 post-pandemic policy rate normalisation provides room for BNM to better manage risks that could destabilise the future economic outlook such as persistently high inflation and a further rise in household indebtedness.