Malaysia likely to raise key rate: Economists
Bank Negara Malaysia (BNM) is expected to raise the benchmark interest rate by 25 basis points today, in a move to further normalise the interest rates, say economists.
It will be a close call but more than half of the research houses polled by the Business Times expect BNM to hike the Overnight Policy Rate (OPR) by 25 basis points today.
"Other than to bring the interest rate environment aligned with the current economic conditions, BNM will also want to ensure that interest rates are not kept too low for too long, as this would hurt depositors and may encourage excessive risk-taking in search of higher returns."
Kit Wei Zheng of Citi estimates the 25 basis points hike would strike the balance between policy normalisation yet leave rates accommodative.
"This would erase half of the earlier 150 basis-point cuts and bring the real OPR rate near the historical range of 0.5-1.5 per cent."
Given the re-emergence of growth uncertainties, he also sees a 40 per cent chance of a pause in July, before an increase either in September or November.
Household loan growth in Malaysia accelerated to 12.5 per cent in May, while household loan applications and approvals remain elevated - which may provide a justification for one last hike to pre-empt further build-up of household leverage.
"Household debt at 77 per cent of GDP (gross domestic product) is now the highest in Asia, with debt service approaching half of household income, even before the OPR was raised.
"A fine balance needs to be struck between limiting the flow of new borrowers versus hurting the stock of existing borrowers," added Kit.
DBS Bank said BNM will continue with its interest rate normalisation in today's meeting, unfazed by a slowing external demand.
"Though external demand is expected to moderate, Malaysia's domestic demand will stay healthy given the lingering effects of the two previous stimulus packages as well as the 10th Malaysia Plan going forward.
"Furthermore, with economic growth gradually reverting back to its 'normal' longer trend path, the interest rate will also have to be back to its normal level," said economist Irvin Seah.
It will be a close call but more than half of the research houses polled by the Business Times expect BNM to hike the Overnight Policy Rate (OPR) by 25 basis points today. They also felt that it would be the last rate hike for the year although BNM's monetary policy committee will have two more meetings in September and November.
"Against the backdrop of a robust recovery in the first half of this year and benign inflation in 2010, we believe Malaysia's central bank is likely to normalise interest rates further," commented Standard Chartered Bank economist Alvin Liew.
Kit Wei Zheng of Citi estimates the 25 basis points hike would strike the balance between policy normalisation yet leave rates accommodative.
"This would erase half of the earlier 150 basis-point cuts and bring the real OPR rate near the historical range of 0.5-1.5 per cent."
Given the re-emergence of growth uncertainties, he also sees a 40 per cent chance of a pause in July, before an increase either in September or November.
Household loan growth in Malaysia accelerated to 12.5 per cent in May, while household loan applications and approvals remain elevated - which may provide a justification for one last hike to pre-empt further build-up of household leverage.
"Household debt at 77 per cent of GDP (gross domestic product) is now the highest in Asia, with debt service approaching half of household income, even before the OPR was raised.
"A fine balance needs to be struck between limiting the flow of new borrowers versus hurting the stock of existing borrowers," added Kit.
DBS Bank said BNM will continue with its interest rate normalisation in today's meeting, unfazed by a slowing external demand.
"Though external demand is expected to moderate, Malaysia's domestic demand will stay healthy given the lingering effects of the two previous stimulus packages as well as the 10th Malaysia Plan going forward.
"Furthermore, with economic growth gradually reverting back to its 'normal' longer trend path, the interest rate will also have to be back to its normal level," said economist Irvin Seah.
Comments
Post a Comment