BNM is due to announce the key OPR today. Since April 2006, the OPR has been stuck at 3.5%. Akin to a soccer betting pool, let us see what the market predicts on Bloomberg.
a) 3.50% (40% chance)
b) 3.75% (55%)
c) 4.00% (5%)
Meanwhile in the US, the FOMC's (Federal Open Market Committee) decision on the Federal Funds Rate has been at 2.00% since April 2008. The market expects that the Fed rate is maintained during its imminent announcement on 6th August. Nevertheless, the US Fed's chairman Ben Benanke is facing calls from some economists and politicians to raise the rate within 2H/2008, given the week USD, still lofty crude oil prices and overall inflation levels.
"Tough decision for BNM to make"
On wednesday, the Malaysian June CPI announcement of 7.7% inflation growth(the highest since 1986) startled many, the hike being mostly due to fuel and food price hikes. This has put the onus on BNM to seriously ponder on raising the OPR to combat the cost-push inflation. On the other hand, raising rates in general do stifle the economics growth rate. With such a dilemma, it is going to be a really tough and close call. Would BNM governor Zeti Akhtar Aziz be brave and decisive enough to raise the OPR now?
We rate the chance of OPR hike as 40-45% today. Raising the OPR rate would inadvertently affect the BLR%, which in turn would ultimately affect mortgage, automobile, business and other loan rates as well. Do we ready for it?
