Bank Negara likely to keep key Interest rate at 2.75%

Tuesday August 17, 2010




By FINTAN NG

fintan@thestar.com.my





Economists say Bank Negara is more concerned over economic activities than inflation



PETALING JAYA: Bank Negara is likely to keep the country’s benchmark overnight policy rate (OPR) at 2.75% when its monetary policy committee meets on Sept 2 as focus shifts to stimulating economic activities rather than price pressures.



The central bank has raised the OPR by 75 basis points this year as the pace of economic recovery accelerated in the first half of the year.



Economists told StarBiz that the consumer price index (CPI) would still see a gradual upward trend for the month of July with the median in a Bloomberg survey showing a 2% rise year-on-year.

The statistics department is scheduled to release the CPI data on Wednesday while Bank Negara will be releasing second quarter (Q2) gross domestic product (GDP) data on the same day.





According to a separate Bloomberg survey, the median for Q2 GDP is 8.4% year-on-year versus the 10.1% achieved in Q1.



“At this point, the central bank will be more concerned about economic activities rather than price pressures, so there’ll be less compulsion to reset rates,” AmResearch Sdn Bhd senior economist Manokaran Mottain said.



He acknowledged that prices in the Klang Valley and other urban areas were rising higher than the rest of the country but this would not show in the aggregate data, which included prices from across the country.



Manokaran, along with other economists, said a double-dip recession would not happen this year in the region.



“Yes, growth is moderating but the eurozone just saw the fastest pace of economic growth in four years while Germany’s is the fastest in 23 years,” he noted.



Singapore-based United Overseas Bank Ltd economist Ho Woei Chen said Bank Negara would likely keep the OPR at 2.75% until the end of next year as growth has moderated.



“Growth will moderate but generally it’ll be within expectations, external factors will have more of an impact on Malaysia due to the economy’s export-oriented nature,” she said, adding that the near term outlook was positive and that there would be no double-dip recession this year and next year. “Growth will certainly not be exciting but the economies in the region will continue to expand.”



Kenanga Investment Bank Bhd economist Wan Suhaimie Saidi said the base effects for the CPI was wearing off with inflation likely to see a higher month-on-month rise although year-on-year it would still be gradual.



He said the income gap was of more concern for ordinary wage earners than any rise or fall in the GDP.



“Likewise any increase in the OPR will not help much too as it will only help those in the higher income brackets,” Wan Suhaimie said.


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