BANK NEGARA KEEPS KEY RATE AT 3PC
Central bank expects strong growth momentum to sustain for rest of year
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