MNI BNM Preview - March 2023: Likely On Hold, But External Pressures Growing

EXECUTIVE SUMMARY

• The consensus rests on no change at tomorrow’s BNM policy meeting. This would leave the policy rate at 2.75%. It is a close call though, with the Bloomberg consensus survey showing that 9 out of 20 economists expect a 25bps rate hike. The remaining 11 are forecasting no change in the policy rate. Domestic developments point to a pause, external developments are leaning the other way in terms of further tightening. On balance, we sit in the no change camp.
• Since the last policy meeting, January CPI printed in line with expectations, with the headline at 3.7% y/y. This showed a further cooling from the 2022 peak. Core pressures also moderated further, back to 3.9% y/y. We are down slightly from the late 2022 peak of 4.2%. We remain elevated by historical standards, but after January’s pause by BNM, the most recent inflation outcomes are unlikely to have shifted the BNM’s outlook.
• BNM is likely to be mindful though of external pressures in terms of renewed Fed hawkishness and fresh pressure on spot ringgit. Continued MYR weakness risks raising imported inflation pressures. Such a backdrop certainly leaves a rate hike on the cards the further we push into 2023. However, for this meeting, we suspect BNM is likely to remain in wait and see mode as it continues to assess how domestic growth and inflation dynamics are unfolding.
• See the full preview here:

BNM Preview - March 2023.pdf