The central bank could keep the overnight policy rate (OPR) unchanged for the entire year, economists believe, with any possible rise only happening in the second half of the year.
In its note to clients, MIDF Research said that despite expectations of higher inflation in 2013, it believed that Bank Negara would most likely keep the OPR unchanged at 3% throughout 2013.
“Based on our probability analysis, at this point in time, it only showed a low 15% chance of Bank Negara raising the policy rate in 2013.
“Should that happen, it is more likely to take place in the second half of this year,” it said.
Bank Negara on Thursday maintained the OPR at 3%, with its monetary policy committee considering the current stance to be appropriate, given the outlook for inflation and growth.
The last time it adjusted OPR was in May 2011, when it raised the rate by 25 basis points (bps) to 3%.
CIMB Research in its note said notwithstanding some improvement in the global economy and still-strong domestic growth momentum, the decision to maintain the current monetary stance underscored a delicate balance between supporting steady growth and managing the spillover from very easy global monetary conditions.
“A prolonged low interest rate environment could harm returns for savers and investors, as well as fuel asset price bubbles.
“We expect rate normalisation in the second half of this year, if economic conditions permit,” the research outfit said, adding that it was keeping its end-2013 policy rate at 3.00%-3.25%.
Maybank IB Research, meanwhile, said it was maintaining its forecast of a 25-bps hike in OPR in the fourth quarter, premised on its expectations that the monthly inflation rate would accelerate to 2.5% this year from 1.6% last year.
The underlying assumptions for the inflation rate view is the impact of the minimum wage, which came into effect on Jan 1, and the resumption of the subsidy rationalisation programme in the second half of this year, taking the cue from Budget 2013’s lower allocation for fuel subsidies, implying adjustments in fuel (petrol and diesel) prices, it said.
Maybank said there was also the recalibration in gas prices with the scheduled commencement of Malacca’s regasification plant in mid-2013 that would process and supply imported gas to the domestic market. This will eventually be followed by a revision in electricity tariff.
MIDF opined that Malaysia’s headline inflation should nudge-up at a modest pace, driven by domestic pressures and higher selected global food prices.
CIMB Research said inflationary expectations were capped as inflation was expected to rise at a “moderate and gradual” pace throughout 2013 on the back of upside risks, given global commodity prices due to the supply disruptions.
Malaysia’s economy recorded a spectacular performance in the last quarter of 2012, growing 6.4%. This was the highest quarterly growth since 2½ years ago and was buoyed by the robust manufacturing and construction sectors. - By The Star
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