Cen­tral bank ex­pects strong growth mo­men­tum to sus­tain for rest of year

New Straits Times - - Business - RUPA DAMODARAN KUALA LUMPUR ru­pa­banerji@me­di­

BANK Ne­gara Malaysia has left bor­row­ing costs un­changed, as widely an­tic­i­pated by the mar­ket, say­ing the econ­omy is rid­ing on a strong growth mo­men­tum.

The Mon­e­tary Pol­icy Com­mit­tee, chaired by gov­er­nor Datuk Seri Muham­mad Ibrahim, main­tained the bench­mark Overnight Pol­icy Rate (OPR) at three per cent at a meet­ing, here, yes­ter­day.

Bank Ne­gara also ex­pects the growth mo­men­tum, which picked up in the sec­ond half of last year, to be sus­tained for the rest of this year.

“Growth will be mainly driven by do­mes­tic de­mand amid con­tin­ued wage and employment growth, and the im­ple­men­ta­tion of new and on­go­ing in­vest­ment projects,” it said in a state­ment.

The com­mit­tee also ex­pects ex­port per­for­mance to im­prove and con­trib­ute pos­i­tively to the econ­omy.

Bank Ne­gara said on the global front, the out­look showed im­prove­ments al­though there re­mained risks from threats, such as pro­tec­tion­ism, geopo­lit­i­cal de­vel­op­ments and com­mod­ity price vo­latil­ity.

Mean­while, JP Mor­gan said Bank Ne­gara’s lat­est mon­e­tary state­ment showed that the “pos­i­tive cycli­cal nar­ra­tive re­mains in place”.

It said the coun­try’s growth looked to be turn­ing a cor­ner as re­cent cycli­cal in­di­ca­tors laid the ground­work for sta­bil­i­sa­tion, if not a pick-up this year, given the stronger ex­ter­nal con­di­tions.

“While re­cov­ery is still in its nascent stages, we ex­pect mon­e­tary pol­icy to re­main broadly sup­port­ive. Bank Ne­gara will likely re­main on ex­tended hold,” it said yes­ter­day.

JP Mor­gan’s bullish view is shared by most of other re­search houses.

Al­liance Bank ex­pects Bank Ne­gara to main­tain the OPR at three per cent, say­ing the cur­rent level re­mains sup­port­ive to do­mes­tic macro and fi­nan­cial con­di­tions.

On the head­line in­fla­tion, which rose to 4.3 per cent in the first quar­ter, the cen­tral bank said it was mainly due to the pass-through im­pact of higher global oil prices and tem­po­rary sup­ply dis­rup­tions that led to higher food prices.

But the higher head­line in­fla­tion is ex­pected to mod­er­ate in the sec­ond half, al­though the level would de­pend on fu­ture global oil prices, which re­main highly un­cer­tain.

“The cost-push in­fla­tion is not ex­pected to have a sig­nif­i­cant im­pact on the broader price trends given the sta­ble do­mes­tic de­mand con­di­tions. Un­der­ly­ing in­fla­tion, as mea­sured by core in­fla­tion, is ex­pected to in­crease only mod­estly,” it said.

It noted that the ring­git had con­tin­ued to sta­bilise while the bank­ing sys­tem liq­uid­ity re­mained suf­fi­cient.

Al­liance Bank said de­spite the heavy sell­down of Malaysian Gov­ern­ment Se­cu­ri­ties (MGS) by for­eign in­vestors, the ring­git re­mained rel­a­tively sta­ble, which could partly be due to Bank Ne­gara’s for­eign ex­change ad­min­is­tra­tion mea­sures in­tro­duced in De­cem­ber.

But it warned there were down­side risks to the ring­git ex­change rate as around RM50 bil­lion of MGS was set to ma­ture in the sec­ond half of the year as well as due to the pace of the United States Fed­eral Re­serve hikes.

MIDF Re­search said the en­cour­ag­ing growth mo­men­tum for the first quar­ter was likely to be sus­tained for the rest of the year.

On pro­tec­tion­ism, the re­search house said the threat was re­ced­ing as re­flected in the re­sults of the Dutch and French elec­tions re­cently.

Bank Ne­gara ex­pects Malaysia’s eco­nomic growth to be mainly driven by do­mes­tic de­mand and the im­ple­men­ta­tion of new and on­go­ing in­vest­ment projects. PIC BY SADDAM YU­SOFF

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