BANK Negara Malaysia is likely to leave borrowing costs unchanged today with external uncertainties still looming.
Economists said the central bank should not be in any rush to cut rates of the overnight policy rate (OPR) at three per cent or the statutory reserve ratio at four per cent
A Business Times poll found that all the research houses were unanimous in the decision by the monetary policy committee at its first meeting for the year today.
They felt that the Consumer Price Index, which eased to three per cent in December from 3.3 per cent in November, indicates lower inflation readings in the months ahead, allowing BNM to hold the rates steady and room for monetary easing.
Bank Islam chief economist Azrul Azwar Ahmad Tajudin said the current OPR level is accommodative enough at this juncture to support domestic demand without stoking inflationary threats.
"There is no compelling case for a rate-cut given prospects of just a mild economic slowdown and not a devastating recession although growth concerns certainly outweigh inflation worries at present among MPC members in view of sluggish economic outlook and easing inflationary pressures," he said.
Nomura Research economist Euben Paracuelles said BNM may be a laggard among its Asean peers in terms of the monetary policy action.
"The easing in some activity data, including exports and loan growth, are unlikely to be sufficient to support a rate cut in the immediate term, although we think BNM will likely see these, along with more advanced data elsewhere in the region, as early evidence of a more downbeat outlook."
But expect the policy statement to be "outright dovish", paving the way for rate cuts shortly, he added.
Citi economist Kit Wei Zheng said in case domestic demand weakens more than expected, the "disinflationary" outlook for the first half of the year could provide some flexibility for rate cuts.
"But with domestic demand still holding up, there appears to be few compelling reasons to cut," he said.
Kit, however, warned of inflation risks, especially if a sharp spike in oil prices forces the government to bring forward subsidy rationalisation in spite of imminent elections.
"There could also be risks with a better-than-expected growth in the first half of 2012 and a growth re-acceleration from the second half of 2012 brings about a resurgence in demand pull pressures."
HSBC Bank chief economist for India and Asean Leif Eskesen said the global economic backdrop has remained weak but broadly unchanged since the last monetary policy committee meeting.
On the data front, he said US indicators have improved in recent months, but growth will likely be constrained going ahead due to weaker net exports and an increased fiscal drag.
In Europe, on the other hand, data has not been encouraging, and the plan to deal with the sovereign debt crisis is still being worked out as doubts about its sufficiency remain.
"While the (Malaysian) commodity sector has so far been relatively resilient, it is also now starting to feel the pinch and joining the electronics sector in the external-led slowdown," Eskesen said.
On the domestic front, demand remains solid, supported by favourable labour market conditions, although confidence and credit growth have eased somewhat in recent months, he added.