Bank Negara expected to keep rate at 3pc
KUALA LUMPUR, May 9 – Malaysia’s central bank will probably keep its key interest rate unchanged at a policy meeting on Friday, with concerns over inflationary pressures outweighing risks to economic growth from the global slowdown.
All 16 economists in a Reuters poll expect Bank Negara to maintain the overnight policy rate (OPR) at 3.0 per cent. A decision on Friday to hold would be the central bank’s sixth straight one since May 2011, when it hiked the benchmark rate for a fourth time in a tightening cycle started in 2010.
“Governor Zeti’s recent comments expressing confidence over the 2012 outlook, the continuing trend of moderating inflation as well as interest rate levels being ‘appropriate’ suggest no inclination to move on rates for the time being,” said Citigroup economist Kit Wei Zheng, referring to central bank leader Zeti Akhtar Aziz.
“Thus, while we expect Bank Negara to maintain the OPR at 3 per cent at the next 2-3 Monetary Policy Committee meetings, odds of a rate hike would start to increase from end -012 and early 2013 as the output gap closes and core inflation picks up,” Kit said.
Most economists in a Reuters quarterly poll last month had predicted that interest rates would stay unchanged in 2012.
Malaysia’s inflation has eased from a 2011 high of 3.5 per cent, in June, but it could creep up again. March inflation moderated to 2.1 per cent but in the quarterly poll, the annual growth rate was seen higher at every quarter to reach the 3 per cent level by mid-2013.
Bank Negara said in its annual report that inflationary pressures could come from higher-than-expected global commodity prices, domestic supply disruptions and rising food prices. It estimates inflation this year at 2.5-3.0 per cent.
Economists said Bank Negara is adopting a wait-and-see stance. The central bank has said it has the “flexibility to respond to adjust the degree of monetary accommodation” in the event of a sharper downturn. Export growth for the year is expected to more than halve to 3.2 per cent year-on-year from 2011’s pace of 8.7 per cent, on weaker demand for electronics and lower global commodity prices.
Today, Malaysia reported that March exports were 0.1 per cent lower than a year earlier, a far worse performance than a 3.4 per cent increase expected by analysts. Exports to China, one of the biggest markets, fell 11 per cent from March 2011.
Bank Negara has projected gross domestic product to expand 4-5 per cent this year, slowing from 5.1 per cent in 2011.
Malaysia’s trade-dependent economy is expected to remain resilient on stronger domestic demand, rooted in government spending and an Economic Transformation Programme – worth US$444 billion (RM1,360 billion) – which comprises initiatives and mostly private investments.
Policymakers in most Southeast Asian countries are likely to concentrate on supporting growth in the near term as the global economic outlook remains uncertain amid slowing inflation.
Central banks in the Philippines, Thailand and Indonesia have kept rates steady after rounds of easing that began in late 2011 or early this year. – Reuters