Bank Negara expected to raise interest rates in 2022

PETALING JAYA: Bank Negara is expected to raise its interest rate this year, following the example of the United States (US) Federal Reserve which plans to raise interest rates three to four times this year to fight inflation.

HSBC Group co-head of Asian economic research Frederic Neumann expected Bank Negara to raise its overnight rate (OPR) by 50 basis points this year, helped by stronger domestic demand. strength and strong export figures as the global economy recovers from the impact of the Covid -19 pandemic.

“In the Asia region, we expect Malaysia to experience one of the strongest domestic demand recoveries.

“On the investment side, especially foreign investment, we believe that Malaysia will be the main beneficiary under current trends, and the country’s exports are expected to remain strong.

“Bank Negara wants to start normalizing interest rates again, relatively quickly. This is where the 50 basis point hike is happening,” he said during the HSBC Asia Outlook 2022 on Monday.

Bank Negara has maintained its OPR at 1.75% since July 2020 when it cut the rate by 2% to support economic growth which has been affected by the Covid-19 pandemic and the movement control order to reduce the rate of infection.

The OPR at 1.75% is the lowest on record since 2004.

In a statement after the briefing, HSBC said that as Malaysia’s labor market strengthens, the country’s core inflation could gradually rise to 2% by the end of 2022, allowing Bank Negara to initiate a process of gradual monetary tightening in the second half of 2022.

“We expect a total of 100 basis points of rate hikes over 2022 and 2023.

“We believe the Malaysian economy has one of the brightest prospects in the region,” he said.

HSBC expected the Malaysian economy to grow 3.6% in 2021 and accelerate to 5.6% this year.

He added that Malaysia has one of the highest vaccination rates in Asia, allowing for a high degree of resilience.

“While restrictions may be reimposed, we believe the government will likely opt for very targeted measures rather than lockdowns.

“Malaysia currently attracts the largest share of foreign direct investment (FDI) commitments (% of GDP) in ASEAN, surpassing Vietnam.

“It bodes well for the future of manufacturing. Malaysia’s manufacturing outlook remains incredibly strong,” HSBC said.

Stephen V. Lee