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PETALING JAYA: The overnight policy rate (OPR) is likely to stay at 3% until the first half of 2024 (H1 2024), says BMI.

In a note yesterday, the Fitch Solutions company predicted that Bank Negara Malaysia (BNM), as well as other central banks including the Federal Reserve, will resume rate cuts in the early months of next year.

BMI added that it expects base effects to remain favourable and underlying price pressures to soften amid the weakening domestic economy.

“Real GDP (gross domestic product) growth already slowed down from 5.6% y-o-y (year-on-year) in Q1 2023 (first quarter of 2023) to 2.9% in Q2 2023.

“We forecast real GDP growth to slow down from 8.7% in 2022 to 4% in 2023, which is below the pre-pandemic average (2015-2019) of 4.9%,” it noted.

The research firm has lowered its end-2023 inflation forecast from 2% y-o-y previously to 1.8%. This, it added, would bring down headline inflation to 2.6% this year compared to 3.4% in 2022.

BMI said BNM will be wary of loosening monetary policy too soon.

“As compared to its regional peers, the central bank’s cumulative 125-basis point hike has been relatively modest, which indicates a less dire need for BNM to cut rates too soon,” it said.

It also noted, at the time of writing, that the ringgit was down 5.8% against the US dollar in the year leading up to Sept 7. The local currency was one of the region’s weakest currencies after the Japanese yen.

BMI highlighted that a slight depreciation of the ringgit can provide some support to Malaysia’s relatively sluggish export performance.

However, it also raised concerns that a rapid shift towards monetary easing could intensify the downward pressure on the local currency.

In the meantime, BMI anticipates a slowdown in economic growth in the upcoming quarters, with an expected growth rate of 4.8% in Q1 2023 and a further moderation to 4% in the Q2 2023.

This represents a notable decline from the 7% growth rate observed in Q4 2022 and falls below the pre-pandemic average of 4.6% recorded between 2018 and 2019.