KUALA LUMPUR: Bank Negara Malaysia (BNM) has reached the end of its hiking cycle and will leave the overnight policy rate (OPR) at 3.0 per cent for the rest of 2023, said BMI.

The brokerage firm, which is a unit of credit rating agency Fitch Solutions, said BNM would increasingly turn its focus to supporting growth over the coming months as inflation continues to moderate domestically.

"This view is supported by a statement released by the central bank, where it believes the current monetary policy stance 'is slightly accommodative and remains supportive of the economy," BMI said in a note today.

It also expects the central bank to leave its policy rate on hold at its next meeting in July for two reasons.

First, headline inflation continued to ease to 3.4 per cent year-on-year in March from 3.7 per cent in February, marking the slowest pace in nine months.

The brokerage firm noted that inflation would continue to moderate in the coming months due to base effects and softer commodity prices.

Second, BMI expects the ringgit to continue range trading over the coming months, which means that currency volatility would not pose a major concern for BNM.

"Following the US Federal Reserve's (Fed) latest meeting on May 3, our global team expects the Fed Funds Rate to be raised only marginally further to a peak of 5.50 per cent by the first half of 2023, from 5.25 per cent currently.

"Even if BNM leave rates on hold for the rest of 2023, this is unlikely to trigger significant portfolio outflows as the divergence in interest rate differentials would be small," said BMI, adding that headline inflation to moderate to 2.5 per cent by the end-2023, bringing the average inflation to 2.9 per cent in 2023 versus 3.4 per cent in 2022.

Meanwhile, BMI expects economic growth to moderate over the coming quarters to 4.8 per cent in the first quarter of 2023 and 4.0 per cent in the second quarter of the year from 7.0 per cent in the last quarter of 2022, and this would be below the pre-pandemic average of 4.6 per cent recorded between 2018 and 2019.

"We expect pent-up demand to fade and the slowdown in external demand to also filter through to other parts of the economy.

"In its monetary policy statement, BNM is also of the view that exports are due to moderate," it added.

-- BERNAMA