By FINTAN NG | Jan 26, 2010
No indication of interest rate hike Tuesday
fintan@thestar.com.my
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Peck Boon Soon ... ‘The recent rise in inflation was driven by higher crude oil and commodity prices.’
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PETALING JAYA: Economists are confident there will be no hike in the overnight policy rate (OPR) at Bank Negara’s first monetary policy meeting for the year today as indications of a stronger economic recovery are still in the balance.
The central bank is scheduled to release a statement in the evening following the monetary policy meeting. Any change in the OPR would affect commercial lending rates and therefore have an impact on economic activities such as currency values to hire-purchase transactions. The rate has stayed at 2% since March last year.
“They’ll maintain the rate as the recovery is still uncertain while the exit strategies (from expansionary monetary policies) of regional peers China and India make the case for a stronger recovery less clear,” AmResearch Sdn Bhd senior economist Manokaran Mottain told StarBiz yesterday.
Morgan Stanley Research’s India team believes the Reserve Bank of India would raise rates at the monetary policy review on Jan 29 as food-price inflation rose to an 11-year high following the weakest monsoon rains in 37 years.
The People’s Bank of China had earlier this month raised the reserve-ratio for commercial banks as a surge in lending last year led to higher risks of asset-price bubbles and inflation this year.
Manokaran said most governments around the world were adopting a wait-and-see attitude since there were fears of growth slowing down in the later half of the year.
He expects Bank Negara to raise the OPR only in the third and fourth quarters, with a 25 basis point hike in each quarter.
Rabobank International financial markets research head Jan Lambregts said in a Jan 20 report that the US Federal Reserve and the European Central Bank were in no hurry to raise rates as there were ongoing uncertainties surrounding the financial industry and public debt.
“Our base scenario only sees monetary tightening kick off in the second-half of 2010, at least six months away. That’s far too distant for these central banks to give a head’s up at this early a stage, in particular against the prevailing uncertainties,” he said.
RHB Research Institute Sdn Bhd economist Peck Boon Soon said that despite inflationary pressure, there would be no rate hike until the end of the year.
Inflation, as measured by the consumer price index, had risen 1.1% last December from the previous year largely due to increases in the food and energy indices.
“The recent rise in inflation was driven by higher crude oil and commodity prices but it is from a lower base, inflation will normalise after the Chinese New Year holidays,” Peck said.
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said last week that inflation was unlikely to exceed 2% for the year.
Peck said a rate hike or hikes due to inflationary pressure would not be useful at this early juncture even if it meant better purchasing power for the ringgit.
“The inflation we’re experiencing right now is cost-driven, even with the rate hikes there’s no control over prices, which will still go up. Any rate hikes at this early stage may affect economic recovery,” he said.
However, TA Securities Holdings Bhd economist Patricia Oh said there could be a rate hike as early as May based on the stronger gross domestic product growth numbers for the final quarter of 2009 and the expected improved numbers for the first quarter of 2010.
On concerns that the economy could slow down should there be a rate hike in the first-half of the year, she said unemployment in the country has remained steady even at the height of the recession early last year.
According to the Statistics Department, unemployment stood at 3.6% in the third quarter of last year.
“Trade balance is at a sustainable surplus and will continue to generate growth,” Oh said, adding that the positive indicators could lead to an earlier than expected rate hike (as opposed to market consensus for a second-half hike).
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