KUALA LUMPUR: While the US Federal Reserve has taken a decisively hawkish turn in its monetary policy, there is a “low likelihood” Malaysia’s own central bank will follow suit, says Kenanga Research.

This is despite a positive economic outlook due to the improving Covid-19 situation and ongoing vaccination efforts, as it said the threat of new coronavirus mutations and its impact on the global economy continue to keep central banks vigilant.

“Hence, we believe that the central bank is expected to keep its overnight policy rate unchanged at 1.75% at least till the first half of 2022,” it said.

Beyond the first six months of 2022 however, there could be a shift towards monetary tightening.

“On the expectation that the economic recovery momentum would pick up along with the persistently elevated inflationary trend, we might see BNM policy stance gradually move towards tightening starting from 2H22 onwards,” said Kenanga.

Overnight, the Fed announced an earlier end to its asset-buying programme and signalled a plan to raise interest rates at an accelerated pace in 2022.

This came following the conclusion of the US Federal Open Market Committee’s (FOM) final meeting for the year, held on Tuesday and Wednesday,

“The Fed said it will double the pace at which it’s scaling back purchases of Treasuries and mortgage-backed securities to USD30bil a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned,” said Kenanga.

The research firm added that while the Fed will keep the federal funds target rate range at 0% to 0.25%, the more rapid taper is expected to give it more flexibility to raise rates at an earlier date.

Projections released by the Fed on Wednesday show that all 18 FOMC members expect at least one rate hike to take place in 2022 while 12 of the members expects three quarter-point hikes during the year and two thought four increases would be necessary.



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