Bank Negara sees stronger-than-expected growth
KUALA LUMPUR: Bank Negara Malaysia reaffirmed that the economy will enjoy a stronger growth this year than the earlier projection of 4.3 to 4.8 per cent.
Domestic demand will be the key driver, supported by the spillovers from external demand as a result of improved global growth outlook.
Bank Negara yesterday left the Overnight Policy Rate unchanged at three per cent, raising optimism on the economy’s growth this year.
The latest assessment by the central bank quashed market projections that the economy would slow in the second half of the year, after a stellar 5.7 per cent growth in the first half.
In its latest meeting, Bank Negara’s Monetary Policy Committee was optimistic about this year’s economic outlook following the 5.8 per cent gross domestic product growth in the second quarter that was driven by firmer domestic activity and exports. The committee will have its final meeting for the year on November 8-9.
Looking ahead, growth prospects will be sustained by the more positive global growth outlook and stronger spillovers from the external sector to the domestic economy.
“Domestic demand will remain the key driver of growth, supported by improving incomes and overall labour market conditions, new and ongoing infrastructure projects and sustained capital investment by firms in the manufacturing and services sectors,” said Bank Negara.
Headline inflation had continued its moderating trend, declining to 3.2 per cent in July, mainly due to the decline in domestic fuel prices, it said.
“Going forward, headline inflation is projected to moderate on expectations of a smaller effect from global cost factors,” said Bank Negara, adding that underlying inflation would be sustained by the more robust domestic demand but was expected to remain contained.
OCBC Bank held that with the healthy growth prints and tame inflation, there is likely little motivation for policymakers to move rates any time soon.
“Malaysia’s growth fundamentals have been healthy so far, led by strong external factors and resilience in its domestic demand.”
But it warned of risks to the growth trajectory, especially from any unexpected negative developments from political and policy developments in major economies and geopolitical risks.
Malaysia’s household debt was one of the highest in the region at 86.7 per cent in the first quarter of this year, and this could dissuade
policymakers from cutting rates further unless necessary.
OCBC maintains its year-end growth outlook at 4.9 per cent.
UOB Bank economist Julia Goh said the latest statement signalled a neutral policy stance.
But she did not rule out the possibility of a rate hike if the strong GDP growth was sustained and wage pressures filtered into higher inflation pressures.
“Domestic demand remains the key driver of growth thanks to improving incomes and labour conditions, new and ongoing infrastructure projects and sustained capital investments,” she added. Rupa Damodaran