Bank Islam maintains call for 25bps OPR hike in second half of 2022

KUALA LUMPUR: Bank Islam Malaysia Bhd has maintained its call for overnight policy rate (OPR) hike of 25 basis points in the second half of 2022 while the US dollar/ringgit to end the year at RM4.15.

In its economic research note today, the bank believes Bank Negara Malaysia (BNM) would assess the Malaysian economy on its own merit to arrive at the appropriate level for OPR.

“In the past, we have seen the difference between OPR and Federal Fund Rate (FFR) at the lowest level of -175 basis points from September 2006 to August 2007. This indicates that any move in FFR does not necessarily change the level of OPR in an instant,” it added.

As for US dollar/ringgit, Bank Islam believes it might linger around RM4.30 to RM4.34 as there is better clarity in the US Fed monetary policy direction.

On Wednesday, the Fed raised interest rates by a half-percentage point to get a handle on the worst inflation America has seen in 40 years.

The US Federal Open Market Committee (FOMC) during its meeting on May 3 and 4 decided unanimously to increase the FFR by 50 basis points, bringing the policy rate to 0.75 per cent and 1.0 per cent from 0.25 per cent to 0.50 per cent.

The size of their balance sheet will also be reduced by US$47.5 billion per month for the next three months.

Bank Islam said the latest FOMC meeting has clearly set the path for the normalisation of the monetary policy stance from one that is highly accommodative to a more restrictive state that corresponds with the pace of economic recovery.

The US Labour market has been performing well with the jobless rate significantly reduced to 3.6 per cent as at March 2022 from 14.7 per cent in April 2020.

Similarly, the US housing market has been on full throttle with the S&P Case-Schiller Home Price Index for 20 major cities rising 20.2 per cent as of February this year as massive liquidity injection in the past has found its way in the real estate market.

“As such, the FFR is likely to hit between 2.50 per cent and 3.0 per cent this year to ensure that the monetary policy will be in restrictive zone,” Bank Islam said. — Bernama