It said the central bank could either hold back on another increase or make a “dovish hike” accompanied by explicit language to signal a pause ahead.
This, the investment bank said, is aimed at curbing negative feedback.
Maybank IB said another increase in the OPR this month could reinforce the upward spiral of the three-month Kuala Lumpur interbank offered rate (3M Klibor) unless a compensating liquidity measure is announced.
In a note issued this morning, the investment bank said that if the OPR is kept at 2.75%, the three-year Malaysian government securities yield could call to 2.35% to 3.40%. It said this would be on the premise that there are no US rates selloff or the start of an easing of 3M Klibor.
The market is expecting BNM to raise the rate by 25 basis points (bps) tomorrow, the second day of its two-day monetary policy committee (MPC) meeting.
“From a rates strategy perspective, we think investors may want to position themselves for a surprise hold by BNM considering that the market is already well priced for additional hikes in OPR to around 3.25%,” Maybank IB said.
“It is true that languages in the last MPC statement in November keep the door open for more hikes but not without a caveat, indicating that rate normalisation is not on any preset course,” it added.
It said domestic growth is expected to slow considerably to 4% from an estimated 8% in 2022.
“Inflation is subject to volatility, depending on the timing and extent of administrative price adjustments. Demand-pulled inflation requires monitoring, but may not necessarily sustain if reopening effect begins to subside and policy tightening weighs,” Maybank IB said.
“Considering the OPR has already reached 2.75% which we think is one or two hikes away from the neutral-restrictive area, BNM can afford to pause,” it added.
The investment bank said foreign exchange stability is not an issue currently.
It said that a key matter to consider is the relentless rise in the 3M Klibor, which has persisted beyond end-2022.
“It was last fixed at 3.71%, giving an extremely wide 96bps spread over the OPR which likely reflects a combination of hawkish rate outlook and interbank liquidity tightness,” it noted.