Hike in SRR a strong possibility
PETALING JAYA: A rise in the reserve requirement ratio (SRR) could come into play in the second half of the year as a preventive measure to manage the potential risk associated with the accumulation of liquidity in the banking system.
The accumulation of liquidity could lead to macroeconomic and financial imbalances, according to the AmBank group.
Based on current data and future incoming data with increased pressure on costs, AmBank Group Chief Economist Anthony Dass said that “any rate hike by Bank Negara is more about addressing the differential in interest rate”.
He added that if liquidity poses problems for financial stability, a 50 basis point (bp) hike in the SRR is more likely to emerge first, followed by a 25 bp hike in the overnight policy rate. day (OPR) later in the second half of the year. .
Dass told StarBiz that: “Although the short-term headwinds (Russian-Ukrainian conflict and China lockdown of the Covid-19 Omicron variant) are strong, they may start to ease in the second half, which is our base case.
“If that happened, the upward economic trend would accelerate.
“This would be supported by expanding business capital expenditure and foreign direct investment across all economic sectors. Consumer spending will also pick up.
“Under such circumstances, it is necessary to carefully manage the liquidity environment in the domestic financial system. If not carefully managed, it could create risks for national macroeconomic and financial stability.
In the meantime, he expects inflationary pressures to persist, buoyed by the Russia-Ukraine conflict and the lockdown in China due to the Omicron variant Covid-19.
Dass added that this would certainly increase cost pressure on businesses, noting that it would be a matter of time before prices are passed on to consumers.
He said that although February inflation rose moderately by 2.2% year-on-year (year-on-year) to bring the average for the first two months to 2.25%, upward pressure remains.
“Although we expect headline 2022 inflation to be between 2.8% and 3.0%, the cost of living will continue to accelerate at a much faster rate, driven primarily by cost factors rather than demand. consumers.
“In addition to the lifting of the moratorium, an uneven recovery and the consideration of a five rate hike by the US Federal Reserve with the next one at 50 basis points, we expect the bank to central remains cautious,” he said.
Meanwhile, Maybank IB Research said it is maintaining its inflation rate forecast for 2022 at 2.7% (2021: 2.5%), but sees upside risk from global commodity prices. energy sources, especially crude oil, as well as the high prices of food-related raw materials, including crude palm oil. prices and global supply chain disruptions following the Russian invasion of Ukraine.
“However, mitigating measures include the continuation of ‘block’ fuel price subsidies to date, the implementation of price and supply administration measures (e.g. freezing electricity tariffs basis for all electricity users in the peninsula from February 1 this year until the end of 2024, introduction of subsidy to poultry farmers for the production of chicken and eggs, allowing the short-term import of chicken frozen whole) and as well as remaining downturns in the economy to contain demand and wage-driven inflation,” the research house added.
Separately, CGS-CIMB Research said cost inflation could intensify as the onset of the Russia-Ukraine crisis supported commodity prices in food, energy and metals.
It reiterates its forecast of two rate hikes of 25 basis points in the second half of the year, bringing the OPR to 2.25% by the end of 2022.