KUALA LUMPUR: Bank Negara Malaysia is expected to raise the overnight policy rate (OPR) by 25 basis points (bps) in the first quarter of 2027, according to JP Morgan.
The US investment bank said it expects Bank Negara to keep the benchmark rate unchanged at its upcoming November policy meeting before raising it by 25bps in Q1 2027.
The forecast suggests Bank Negara could begin tightening monetary policy next year as strong growth momentum supports the outlook for domestic economic activity.
A rate increase will mark a shift towards tighter monetary conditions, potentially raising borrowing costs for households and businesses while supporting efforts to keep inflationary pressures in check.
On inflation, JP Morgan kept its headline and core consumer price index (CPI) forecasts at 1.8 per cent and 1.9 per cent respectively for this year, with both gauges stepping down to 1.7 per cent next year.
"But as we have previously highlighted, elevated and still-rising input costs point to upside inflation risks," it added.
In contrast to most regional peers, JP Morgan said inflation in Malaysia has remained rangebound at between 1.8 per cent and 2.0 per cent over the past six months.
This is despite elevated energy prices, helped by subsidies for fuel and electricity as well as still-benign core price pressures.
Following a slight uptick to 1.9 per cent in August, headline inflation ticked back down to 1.8 per cent last month, printing below expectations.
Notwithstanding the cushion from petrol and diesel subsidies, the firm said the transport fuel CPI gained another 1.4 per cent month-on-month in September.
However, this was more than fully offset by a larger-than-expected 3.1 per cent drop in electricity prices.
"The larger drop in electricity prices than implied by the automatic fuel adjustment rate set in September owes to expanded electricity subsidies which now protect users consuming up to 800 kilowatt-hour (kWh) electricity per month, up from 600kWh earlier.
"As of now, this threshold is set to revert to 600kWh in January 2027," JP Morgan said.
© New Straits Times Press (M) Bhd