KUALA LUMPUR: S&P Global Ratings (S&P) expects Malaysia’s overnight policy rate (OPR) to increase by 50 basis points (bps) or less this year due to the inflationary impact of the Russia-Ukraine conflict and capital outflow pressure, amid a hawkish US Federal Reserve (Fed), according to a Bernama report.

       The national news agency quoted S&P Asia-Pacific chief economist Louis Kuijs as saying that higher inflation and rising US interest rates were weighing heavily on Asia-Pacific economies.

       Given the current environment, the S&P expects that in countries where inflation already exceeds targets or which are vulnerable to capital flight, their central banks will be forced to raise interest rates.

       However, where neither inflation nor capital flight is a major issue, the central bankers will focus on growth.

       “This will result in a three-speed policy setting across Asia-Pacific.

       “Many economies are likely to see significantly higher rates – some may lift rates moderately, while the rest (China and Japan) probably will not tighten at all,” he pointed out.

       He said Asia-Pacific’s monetary policymakers would face difficult trade-offs this year as the Russia-Ukraine conflict is adding to global inflation, while the increasingly hawkish Fed is tightening its policies, and has signalled that it would significantly reduce its balance sheet.

       These events have put pressure on the region’s central banks to raise policy rates to anchor inflation expectations, retain credibility, support the national currency, or head off financial instability.

       “However, as the effect of the conflict and the Fed shift weighs on economic growth, we anticipate some central banks will tighten as little as possible, or not at all,” added Kuijs.

       In early March, Bank Negara had maintained the OPR at 1.75%, in line with the consensus expectation of economists surveyed in a Bloomberg poll.

       The interest rate has stayed at an all-time low of 1.75% since July 7, 2020, after it was cut from 2% to provide additional policy stimulus in light of the Covid-19 pandemic.

       In a statement, Bank Negara said its monetary policy committee considered the current stance to be appropriate and accommodative.

       Fiscal and financial measures will continue to provide support to economic activity, according to the central bank.

       “Amid the prevailing uncertainties, the stance of monetary policy will continue to be determined by new data and their implications on the overall outlook for domestic inflation and growth,” it said.