Healthy economic fundamentals to support Malaysia’s growth

KUALA LUMPUR: Analysts are generallycautiouslyoptimisticabout Malaysia’seconomicperformancein 2017.

In a recent report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) pointed out that the recently released 2016 Bank Negara Malaysia (BNM) annual report kicked off with a relatively more optimistic outlook to the previous year.

However, it noted that the report retained a cautious tone, warning of downside risks arising from global events,particularlyamongthemajor economies.

Furthermore, lingering domestic risks (higher cost of living, weak sentiments, among others) might also weigh against Malaysia’s recovery, it added.

Nevertheless, the research team opined, “The prospect of Malaysia’s economicgrowth,barringunforeseen shocks, appears to have improved.

“Thismaycompelustobelievethat it could be a start of a gradual shift of monetary policy bias to slightly tightening from the current neutral standing.”

That shift, however, might only happen provided the perception of political risk subsides along with the reversion of the ringgit towards its fair value, it cautioned.

“For now, we reiterate our viewpoint that BNM would retain the overnight policy rate (OPR) at three per cent at least in the the first half of 2017 (1H17) in the absence of any deterioration to growth amid cost-push inflationary uptrend.

“The possibility of a highlyanticipated General Election in the second half of the year would also add to the likelihood that rates would remain unchanged. That being said, we believe the OPR is bothaccommodativeofgrowthwhile sufficient in keeping inflation in check,” it commented.