Summary Of Some Sell-Side Views Post Yesterday's Surprise On Hold Outcome

Following BNM's surprise on hold decision yesterday, below is a summary from some sell-side analysts post the outcome. The general sense is that BNM could be on hold for a while. Downside risks also prevail in terms of terminal rate projections.

• GOLDMANS: As the BNM pauses to take stock of the tightening so far, we are pushing our policy rate forecast path back, and now forecast two additional 25bp rate hikes in Q2 (May) and Q3 (Sep), respectively, with the Q2 hike conditional on core inflation remaining sticky to the upside in coming months, and the Q3 hike conditional on our forecast of a shift to targeted fuel subsidies by mid-year, as this would be an upside risk to BNM inflation forecasts. These hikes will take the policy rate to a terminal level of 3.25% (from 3.50% previously). A faster domestic growth slowdown in coming months and/or slower shift to targeted fuel subsidies, would be a dovish risk to our new baseline policy rate forecast path.
• JPM: BNM to remain on hold amid lingering growth uncertainties. As we have noted, the fiscal outlook remains key in guiding our growth narrative and in turn inflation which will then guide our monetary policy expectations. Although the revised FY23 budget will only be released next month, in our view, Bank Negara will remain on hold premised on our view of a slightly negative fiscal thrust this year. A material shift in the fiscal posture, however, may prompt us to revisit our macro assumptions and in turn, the monetary policy outlook.
• ANZ: Overall, we believe that BNM has entered a wait-and-watch mode. It reiterates that the current policy rate is growth accommodative. Considering the transmission lags of changes in monetary policy, the full effects of the cumulative hikes of100bps have yet to be felt in growth and inflation. With external risks subsiding, BNM has more room to evaluate economic developments. In our view, the government’s decision on the fuel subsidies will remain a key factor for future central bank policy decisions. But it is unlikely to be seen before the unveiling of the new Budget in late February. Our current forecast of the terminal rate stands at 3.50%, but BNM’s decision today has opened up downside risks.
• DBS: We think that BNM is set for a prolonged pause, as it appears to place a higher emphasis on Malaysia’s softer growth outlook in 2023 over elevated inflation levels, coupled with a shift in guidance. The central bank expects growth in the relatively open economy to moderate in 2023 driven by slower global growth, in line with our view. It highlighted various downside risks, despite acknowledging supportive domestic demand. The risks included weaker-than-expected growth in major economies – but recognizing China’s improved outlook after the current pandemic wave eases, escalation of geopolitical conflicts, sharp financing condition tightening, and resurfacing of supply chain disruptions.