PETALING JAYA: Bank Negara will likely start raising interest rates in the second half of next year as the country’s economy strengthens, according to several brokerages.

       In its recent note, CGS-CIMB Research said it expected monetary policy normalisation to begin only in the second half of 2022 (H2’22). It had earlier projected the policy change to start in the second quarter of next year (Q2’22).

       Maybank Investment Bank Research (MaybankIB Research), on the other hand, said it expected a hike in the overnight policy rate (OPR) in Q4’22.

       Bank Negara last Thursday kept the OPR unchanged at the current record-low of 1.75%. The OPR is the benchmark on which commercial banks base their deposit and lending rates.

       The central bank noted while the renewed lockdown measures have dampened the country’s growth momentum, it was optimistic about the recovery ahead, citing “the recent gradual relaxations for more economic sectors to operate, along with higher adaptability of firms to the new operating environment, and continued policy support”.

       “The monetary policy statement continues to see downside risk to growth, but this is more on speed and strength of recovery rather than the threat of double-dip recession,” MaybankIB Research said.

       The brokerage maintained its call of unchanged OPR until well into next year, as it expected a 25-basis-point hike in OPR in Q4’22.

       CGS-CIMB Research said given the bumpy road towards recovery thus far, with a downgrade in official 2021 gross domestic product projection to 3%-4% recently (versus 6%-7.5% previously), it was of the view that Bank Negara would likely be patient in tightening monetary policy.

       “We now expect monetary policy normalisation to begin only in H2’22,” it explained.

       It had earlier projected a total of 75bps hike in OPR by end-2022, with the first hike coming as early as May 2022.