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Bank Negara likely to keep interest rate low [11-07-2013]  
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Bank Negara Malaysia is likely to keep to a low-interest regime, keeping the key benchmark interest rate unchanged at three per cent.

Research houses polled by Business Times expect the central bank's monetary policy committee to stand pat and keep the Overnight Policy Rate (OPR) on hold following its two-day meeting today.

RAM Holdings chief economist Dr Yeah Kim Leng does not expect any change in the meeting.

"Global and domestic growth momentum has moderated while inflation pressures and expectations remain subdued, both arguing against a rate hike.


"A rate cut is incongruent with the current strong credit growth as well as resilient domestic demand," he commented.

Bank of America Merrill Lynch Asean economist Dr Chua Hak Bin said inflation remains relatively benign at 1.8 per cent in May. "High household leverage at 80.5 per cent of GDP may also discourage any rate cut, given the risk of further encouraging more leverage."

Citi said the relatively low headline and core inflation, despite their upticks, suggest demand-pull pressures remain contained, though core momentum appears to have bottomed.

"Together with still resilient domestic demand, and at the same time lacklustre external demand that has yet to pick up convincingly, this suggests that rates remain "appropriate" as in the May Monetary Policy Committee statement."

However, although domestic demand remains robust, the fragility of the external environment suggests it is still early yet for upward policy normalisation, commented HSBC Bank.

"Low inflation - below the central bank's comfort range of two to three per cent - also means Bank Negara can afford to maintain a low policy rate for now.

"Next year, however, normalisation will be back on the agenda once the global recovery gains traction and the central bank looks to keep domestic household debt in check."

Gundy Cahyadi of OCBC Bank described this week as interesting for Asia as three banks - Bank Negara, Bank Indonesia and and Bank of Thailand - decide on their monetary policy rates.

Source:BUSINESS TIMES
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