afternoon highlight (10/05/12/085/559) No change in interest rates expected

No change in interest rates expected

Bank Negara to maintain OPR at 3%, say economists

PETALING JAYA: Bank Negara is expected to maintain the overnight policy rate (OPR) at 3% when it's monetary policy committee meets tomorrow as the current rate continues to be at an accommodative level, promoting growth and price stability, according to economists.

AmResearch Sdn Bhd director of economic research Manokaran Mottain did not forsee any rate review of the OPR which is the benchmark rate that determines banks' lending rates, for the rest of the year.

“OPR will remain at 3% throughout 2012,” he told clients in a report yesterday.

In the same report, Manokaran said domestic demand, especially in private consumption and investment, would support gross domestic product (GDP) growth in the quarters ahead.

In addition, the need for a rate cut in order to encourage growth was further reduced given the ample amount of liquidity currently in the banking system, coupled with healthy levels of loans growth.

“As for inflation, despite the sustained rise in commodity prices, particularly in crude oil, we still forecast inflation to moderate to 2.5% for 2012, from 3.2% in 2011,” Manokaran said.

In its report, HSBC Global Research noted that all in all, economic fundamentals in the United States and Europe remained weak and hence it believed that downside risks were still considerable.

“Still, domestic demand remained solid supported by favourable labour market conditions and supportive monetary policy settings, with credit growth still running fast and sentiment indicators improving,” its economist Leif Eskesen said.

Looking ahead, inflation was expected to remain in check in coming months, Eskesen said but gradually increase during the second half as pent-up inflation was passed through and growth picks up.

“In view of this and given the still accommodative monetary policy settings, Bank Negara is expected to extend the pause to balance near-term growth risk while containing inflation pressures further down the road,” he said.

He added that the central bank was expected to resume tightening no later than next year.

The pause in the OPR tomorrow will be Bank Negara's sixth in a row, if it materialises.

Manokaran is expecting GDP to improve in the coming quarters, even rebound sharply to near 6% in the second half of this year, which would average the annual growth to around 5% this year.

Bank Negara expects the economy to grow between 4% and 5% this year.

Source : New Straits Times

Date : 10 May 2012

afternoon highlight (10/05/12/085/559)