Borrowing costs unchanged at 3pc, inflation to stay modest
KUALA LUMPUR: Bank Negara Malaysia, as widely anticipated by the market, left borrowing costs unchanged at 3 per cent.
The Monetary Policy Committee, which held its first scheduled meeting yesterday, said the current stance of monetary policy is to be supportive of the economy while inflation remains contained.
Headline inflation averaged 1.6 per cent in 2012 and although Bank Negara expects inflation to be higher, it said it would remain modest.
Selected global food prices and domestic factors are expected to increase costs and contribute to higher prices. Given modest global growth prospects, pressures from global commodity prices are expected to be contained too.
Citi said yesterday's statement showed a less "dovish" stance by the central bank and suggests no hurry to hike the Overnight Policy Rate (OPR) for now - though clearly, one has to keep an eye on the data.
"If the OPR is changed, then clearly the risk is tilted towards a hike rather than a cut, and if so, more likely in the second half of the year."
The research house cut its inflation forecast for 2013 to 1.7 per cent and expects it to average 2.0 per cent in the second half of the year. Inflation could be higher if petrol prices are raised more than the two 10 sen per litre hikes or pressures from the minimum wage surprise on the upside.
On the domestic economy, the central bank said a broad set of indicators suggests robust expansion in the fourth quarter of 2012.
Growth was driven by sustained domestic consumption and investment activity with some improvements in the external sector.
Bank Negara will release the fourth quarter data of 2012 by February 20. Looking ahead, domestic demand in Malaysia will continue to expand, underpinned by firm private sector activity, it said.
"Private consumption will be supported by income growth and stable employment conditions while investment will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and the ongoing implementation of infrastructure projects."
The external sector is also expected to gradually improve and provide additional support to the economy.
On the global front, it said economic activity is showing signs of improvement, although at an uneven pace. Major advanced economies saw growth constrained by ongoing fiscal consolidation and weak labour market conditions.
"Stress in the international financial markets has also receded. Notwithstanding these improvements, downside risks to the prospects for global growth still remain."
In Asia, growth is supported by sustained domestic demand and a gradual recovery in external demand.
Meanwhile, the central bank, in a separate statement on the monetary developments in December, described loan demand as robust with sustained loan applications from both business and household sectors.
Net financing to the private sector grew by 12.5 per cent in December, driven by several large issuances of private debt securities (PDS), mainly by the finance and government and other services sectors.
Headline inflation also was lower in the month, at 1.2 per cent.
During the month, the ringgit depreciated against the US dollar, euro, renminbi and Singapore dollar. Its depreciation against the greenback followed concerns over global growth prospects arising from heightened uncertainty surrounding the US fiscal position.
In January, the ringgit also depreciated against the currencies of Malaysia's major trading partners.
As at January 15, Bank Negara's international reserves stood at RM427.9 billion (equivalent to US$140 billion), sufficient to finance 9.5 months of retained imports and are 4.2 times the short-term external debt.
The Monetary Policy Committee, which held its first scheduled meeting yesterday, said the current stance of monetary policy is to be supportive of the economy while inflation remains contained.
Headline inflation averaged 1.6 per cent in 2012 and although Bank Negara expects inflation to be higher, it said it would remain modest.
Selected global food prices and domestic factors are expected to increase costs and contribute to higher prices. Given modest global growth prospects, pressures from global commodity prices are expected to be contained too.
"If the OPR is changed, then clearly the risk is tilted towards a hike rather than a cut, and if so, more likely in the second half of the year."
The research house cut its inflation forecast for 2013 to 1.7 per cent and expects it to average 2.0 per cent in the second half of the year. Inflation could be higher if petrol prices are raised more than the two 10 sen per litre hikes or pressures from the minimum wage surprise on the upside.
On the domestic economy, the central bank said a broad set of indicators suggests robust expansion in the fourth quarter of 2012.
Growth was driven by sustained domestic consumption and investment activity with some improvements in the external sector.
Bank Negara will release the fourth quarter data of 2012 by February 20. Looking ahead, domestic demand in Malaysia will continue to expand, underpinned by firm private sector activity, it said.
"Private consumption will be supported by income growth and stable employment conditions while investment will be led by capital spending in the domestic-oriented sectors, the oil and gas industry and the ongoing implementation of infrastructure projects."
The external sector is also expected to gradually improve and provide additional support to the economy.
On the global front, it said economic activity is showing signs of improvement, although at an uneven pace. Major advanced economies saw growth constrained by ongoing fiscal consolidation and weak labour market conditions.
"Stress in the international financial markets has also receded. Notwithstanding these improvements, downside risks to the prospects for global growth still remain."
In Asia, growth is supported by sustained domestic demand and a gradual recovery in external demand.
Meanwhile, the central bank, in a separate statement on the monetary developments in December, described loan demand as robust with sustained loan applications from both business and household sectors.
Net financing to the private sector grew by 12.5 per cent in December, driven by several large issuances of private debt securities (PDS), mainly by the finance and government and other services sectors.
Headline inflation also was lower in the month, at 1.2 per cent.
During the month, the ringgit depreciated against the US dollar, euro, renminbi and Singapore dollar. Its depreciation against the greenback followed concerns over global growth prospects arising from heightened uncertainty surrounding the US fiscal position.
In January, the ringgit also depreciated against the currencies of Malaysia's major trading partners.
As at January 15, Bank Negara's international reserves stood at RM427.9 billion (equivalent to US$140 billion), sufficient to finance 9.5 months of retained imports and are 4.2 times the short-term external debt.
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