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Bank Negara keeps key rate at 3pc [07-09-2013]  
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Bank Negara Malaysia, as expected, left borrowing costs unchanged at its Monetary Policy Committee meeting yesterday.



Research houses expect the central bank to stand pat on its policy at its last meeting for the year in November.

Bank Negara, in maintaining the Overnight Policy Rate (OPR) at three per cent, said there are increased uncertainties to the balance of risks surrounding the outlook for domestic growth
and inflation.

It warned that inflation is expected to increase in the remainder of the year and into next year resulting from domestic cost factors — including the recent subsidy adjustments.

“The increase in inflation, however, would be from a low level and would be mitigated by a stable external price environment, expansion in domestic capacity and moderate domestic demand pressures,” it said in a statement.



Inflation remained low at 1.7 per cent in the first seven months of the year.

In terms of growth, domestic activity will continue to underpin economic growth amid weakness in external demand.

CIMB Investment Bank chief economist Lee Heng Guie said Bank Negara is content with the three per cent level — unchanged since July 2011.

“At a time of financial turbulence in emerging markets, given concerns about macro headwinds as well as capital reversals in the run-up to the United States Federal Reserve’s tapering
actions, it is a challenge to find the right monetary policy balance between supporting decent economic growth and maintaining orderly market conditions.”

Bank of America Merrill Lynch economist Dr Chua Hak Bin said concerns over household leverage at 83 per cent of gross domestic product (GDP) in the first quarter and potential capital
outflows on the quantitative easing (QE) tapering would probably rule out any rate cut.

Another area of concern is Malaysia’s public debt-to- GDP, which is approaching worrying levels.

At 54.6 per cent, it is just an inch away from the debt ceiling of 55 per cent of GDP, he added.

Patricia Oh of AmResearch expects the OPR to be hiked by 25 basis points in the second half of next year on higher cost pressure, which will prolong the negative real interest rate environment.

She also expects QE tapering by the Fed to continue to weaken the ringgit due to the heavy outflow of foreign funds.

Source:BUSINESS TIMES
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