“A stabilising inflation trajectory chips away market talks about having to hike rates to battle price pressures.”

KUALA LUMPUR: Bank Negara Malaysia is likely to maintain the current level of borrowing costs as the Malaysian economy remains on a stable growth footing and the outlook on inflation is stable.

The strong growth momentum, reflected in the gross domestic product growth in the first quarter at 5.6 per cent, and indications of a rebound in the domestic economy against improved economic conditions of the world’s top two economies — the United States and China — removes the need for a change in the Overnight Policy Rate (OPR).

Bank Negara’s monetary policy committee will release its statement today.

Economists expect the OPR to remain pat at 3.00 per cent until the end of the year.

OCBC Bank said an improvement in the growth outlook removes the need to inject further stimulus.

“A stabilising inflation trajectory chips away market talks about having to hike rates to battle price pressures.”

Research houses do not expect any changes to the statutory reserve requirement position too, a move which Bank Negara did to improve the liquidity in the financial system.

In the coming months, growth should taper off somewhat, said the HSBC Bank.

But given the strong base to the year and the chance of general elections, upside risks remain, it said, adding that inflation has also likely already peaked and should descend towards three per cent by the end of the year.

Standard Chartered Bank economist Edward Lee said the first quarter’s growth together with high inflation of 4.2 per cent in the five months of this year due to supply-side factors, may indicate risk of Bank Negara tightening.

“Bank Negara appears to be comfortable with maintaining the status quo for now, noting in the last MPCsStatement that the current policy rate is accommodative and supportive of activity.”

Hong Leong Investment Bank said economic growth has moderated since the second quarter as seen in the mixed trend in monetary indicators in May. Excess liquidity in the banking system rose slightly while other liquidity indicators such as loandeposit ratio, loan-to-fund and equity ratio showed a similar pattern.

Foreign holdings of Malaysian government debt securities recorded an inflow of after five months of bond outflow.

An upside movement of OPR is also rather limited, according to Malaysian Rating Corp Bhd.

“Although inflation figures will be closely watched in the next six months following the spike in the first five months of 2017, we think that cost-push factors will not induce Bank Negara to react as it could lead to a deterioration in consumers’ financial position,” it added.