Private investments to grow at a moderate pace

“That said, policy- driven income support for the lower- and middleincome groups will mitigate some of this downside risk; we expect private consumption growth to stay resilient at five per cent in 2016, i.e. moderately lower than the 5.8 per cent projected for this year,” it added.

The ratings agency also pointed out that private investment would grow at a moderate pace next year in the face of domestic and external headwinds.

It added there would still be some support from ongoing infrastructure and development projects. At the same time, private investment is anticipated to record 6.3 per cent growth in 2016.

Aside from that, it said, inflationary pressure is envisaged to show a moderate increase to three per cent next year, from the 2.3 per cent projected for 2015.

“Although we neither expect second-round GST effects to be prevalent nor any significant change in average crude oil prices; the anticipated weakness of the ringgit and thus lingering imported inflationary pressures – via intermediate goods as inputs for production and imported consumer goods - will elevate prices in 2016,” RAM Ratings noted.

As for Malaysia’s foreign exchange (forex), the ratings agency pointed out that the exchange-rate is expected to remain volatile next year, with persistent downward pressure on the ringgit to US dollar rate.

This is based on the projected moderation in growth, the narrowing of current account surplus, greater inflationary pressures, and the US Fed’s vacillation on its monetary policy.

“Against this backdrop, we expect the ringgit to US dollar exchange rate to average RM4 to RM4.50 in 2016,” it opined.

“Given our expectations on growth and inflation for 2016, there is little incentive for Bank Negara Malaysia ( BNM) to adjust the overnight policy rate ( OPR) next year, without risking more volatility in the ringgit to US dollar exchange rate.

“As such, we expect the OPR to be kept at the current level of 3.25 per cent, barring any significant downside risk to growth sustainability,” it commented.