‘KEY RATE SET TO STAY TILL Q3 NEXT YEAR’
Bank also lowers Malaysia’s GDP growth forecast for this year to 4.7pc
MALAYSIA is unlikely to change the Overnight Policy Rate from the historically low level of 1.75 per cent until the third quarter of next year, said Standard Chartered (StanChart).
“We see two rate hikes of 25 basis points (bps) each in the third and fourth quarters of next year, bringing the key interest rate to 2.5 per cent,” said the Asian-centric British bank in its outlook report on Malaysia for the second half of this year.
It added that further fiscal support might be limited by the statutory debt ceiling of 60 per cent of gross domestic product (GDP), although that was expected to be raised to 65 per cent.
“Based on previous government’s projections, statutory debt is estimated to reach 58.5 per cent of GDP by year end but this may be higher given that growth is likely to be lower than projected.”
The bank said the recent direct fiscal injection of RM15 billion would add one percentage point to debt growth, although how this was funded remained unconfirmed.
StanChart has lowered Malaysia’s GDP growth forecast for this year to 4.7 per cent from 6.3 per cent previously to account for the impact of the latest Covid19 lockdown.
The bank said still-affected sectors accounted for 32 per cent of GDP, with the industries ranging from transport and storage to accommodation and food, business services, construction and manufacturing.
“An accelerated Covid-19 vaccination rollout should support the rebound once the economy reopens. Recovery may remain uneven, with external demand providing a key source of support.
“Consumer spending may be supported by various fiscal measures and build-up of savings,” it added.