Bank Negara Malaysia (BNM) is expected to maintain its Overnight Policy Rate (OPR) at 3% throughout 2024, according to BMI, a Fitch Solutions company. This projection follows BNM’s recent decision to leave the OPR unchanged for the third consecutive meeting on November 2, aligning with expectations.
Inflation Trajectory
BMI highlights that Malaysia’s domestic inflation has been on a clear downward trajectory. The forecast anticipates further easing of inflation in the coming months, with an expected inflation rate of 1.8% by the end of 2023. BNM’s primary concern remains price stability, and the central bank acknowledges potential upside risks to its view of inflation easing in 2024.
Core Inflation Trends
Core inflation, which remains above its five-year average of 1.6%, has significantly eased from its peak of 4.2% year-on-year in November 2022 to 2.5% in September. It is on track to align with BNM’s core and headline inflation targets, averaging between 2.8% and 3.8% this year.
Economic Growth Prospects
BMI’s outlook on Malaysia’s real Gross Domestic Product (GDP) growth anticipates an expansion of 4% in 2023 and 4.4% in 2024. These forecasts align with the lower end of BNM’s growth targets of 4%-5% and fall below the pre-pandemic average (2015-2019) of 4.9%.
Ringgit Stability
Regarding the Malaysian Ringgit, BMI suggests that BNM is unlikely to loosen monetary policy, as doing so might risk destabilizing the local currency and further downward pressure on its value. The Ringgit has faced notable depreciation of 6.5% against the US Dollar year-to-date, which was acknowledged by BNM. Expectations of a higher-for-longer interest rate environment in the US have contributed to renewed dollar strength.
This projection for BNM to maintain the OPR at 3% through 2024 reflects its commitment to price stability amid evolving economic conditions and the downward trend in domestic inflation.
