KUALA LUMPUR: Malaysia's economy may be in for an upswing in 2024, accompanied by a subdued inflation outlook that may keep interest rates unchanged throughout the year.
Economists believe Bank Negara Malaysia is unlikely to adjust its key Overnight Policy Rate (OPR) given its current alignment with preferred levels, unless a significant external shock disrupts the economy.
"There is a prospect of stronger growth but inflation should be more muted so we will not expect any change in interest rates unless there is a shock to the economy.
"So unless there is a big external shock, we expect the OPR to remain at three per cent next year," Malaysia University of Science and Technology economic professor Geoffrey Williams told Business Times.
According to Williams, the ringgit is likely to strengthen because the interest rate pressure overseas will ease as global inflation falls and underlying fundamental factors will strengthen the ringgit in the long-term.
The ringgit will likely strengthen if policy reform in Malaysia builds momentum, he added.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said the prospect of higher growth and an increased inflation rate in the upcoming year may provide less incentive for Bank Negara to cut the OPR.
With the expectation of a robust but not exceptionally high growth, Ahmed Razman said it is likely that the OPR will remain unchanged, reflecting the cautious approach of the central bank.
Ahmed Razman also expects borrowing costs to remain at current levels throughout 2024.
While it is a crucial factor, he said it may not be the sole determinant influencing the movement of the ringgit.
"I don't think the ringgit will continue to weaken as fundamentally, our economy remains resilient and strong given the positive economic macro indicators for the past three quarters. So most likely the ringgit will rebound soon," he said.
Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid said there is always a scope for Bank Negara to cut rates if the economy is affected by the global slowdown.
In this regard, Afzanizam said Bank Negara had raised the OPR from an all-time low of 1.75 per cent to 3.00 per cent and therefore, the central bank has the policy space to manouvere.
"Judging from the current rate of inflation and growth prospects, the global interest rates may have reached their peak. The next question is when the policy rate could be reduced again? This will be greatly dependent on the impact from the past rate rise, especially in the developed economies such as the US and Europe and among the G10 countries except Japan.
"Should the past interest hike have a material impact on growth, the next course of action is obviously to cut the interest rates. So monetary policy is never static and that may include Bank Negara," he said.
Meanwhile, Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said next year is expected to be a challenging year for the global economy, as the cost of funds remain high. This is due to the US Federal Reserve's intention to keep the current rates and may not be cutting rates soon.
Hence, Aimi believes Malaysia's external trade will remain sluggish at least for the first half of 2024, while China's recovery is not as fast as expected.
"The domestic economy will continue to be the key driver of the Malaysia economy and OPR is expected to be maintained by bnm for the rest of 2024. If there is a possibility of a slowing economy then we can anticipate Bank Negara cutting rates.
"In addition, the ringgit is highly influenced by external factors, especially the direction put by the Federal Reserve," he added.
