KUALA LUMPUR (May 13): Fitch Solutions Country Risk and Industry Research is expecting another 25 basis points (bps) worth of interest rate hikes, as Bank Negara Malaysia aims to rebuild policy buffers and maintain ringgit stability.
In a report on Thursday (May 12), the firm said the economy is still likely to post a robust recovery in 2022, for which it forecast 5.6% real GDP growth, providing the central bank with sufficient policy room to normalise its monetary policy.
“Maintaining the real interest rate differential against the US and preserving the value of the ringgit will be a key motivation for a further 25bps hike despite relatively benign inflation, which has been capped by price controls and subsidies,” it said.
Fitch Solutions said while inflation appears to be well contained by government subsidies and price controls for key essential items and fuel, the ringgit has depreciated by 4.1% since April and further losses could feed through to higher imported inflation, lowering the purchasing power of consumers.
The firm said it continues to see upside risks if major central banks around the world were to tighten monetary policy even quicker than we currently expect due to growing underlying inflationary pressures.
“Moreover, we have revised down our average inflation forecast for 2022 to 2.8% y-o-y, from 3.3% previously and 2.5% in 2021.
“Inflation came in at just 2.2% y-o-y in March, holding steady from February and slightly down from 2.3% y-o-y in January, despite rising commodity prices over that period.
“This is likely due to the price controls and subsidies implemented by the government, which we expect to keep headline inflation relatively subdued over the rest of 2022,” it said.