KUALA LUMPUR, Sept 17 — Slower household credit growth, and stuttering factory output and exports could persuade Malaysia’s central bank against raising interest rates for a second time in three months, but some analysts reckon a 25 basis point increase remains likely.
A Reuters poll earlier this week showed analysts were evenly split between whether Bank Negara would hold the policy overnight interest rate steady at 3.25 per cent at its meeting today, or raise it to 3.50 per cent.
Economic growth of 6.3 per cent in the first half of 2014 gave Bank Negara confidence to order Malaysia’s first interest rate rise in three years in July to help dampen consumer credit growth.
At the time, there were strong expectations that the central bank would follow up its 25 basis point increase with another of the same magnitude in September.
But since then credit growth has slowed, with a rise of 8.6 per cent in July compared with 9.3 per cent in June, and economists expect the pace of loans to moderate further.
Exports and factory production output also dipped to 0.6 per cent and 0.5 per cent respectively in July.
Some analysts believe that regardless of the loss of momentum in July, the economy is robust enough to weather another increase in rates, as policymakers still need to curb inflationary pressures and consumer debt.
“Growth remains pretty strong and there’s still room to hike rates currently,” said Jeff Ng from Standard Chartered.
“The numbers in July may be more of an anomaly given there are a number of public holidays that month. That may have distorted the robust figures,” Ng said of the dismal July trade and manufacturing data.
Consumer price data released yesterday showed annual inflation at 3.3 per cent in August, slightly higher than July’s 3.2 per cent.
Ho Woei Chen from United Overseas Bank (UOB) said that the central bank may wait to observe the economic growth in the coming months and saw no urgent need for another rate increase at this stage, with inflation expected to subside before upward pressure remerged in 2015.
“If growth remains strong and taking into account the higher inflationary pressure next year, the risk is a hike in the first quarter 2015 instead of this year,” Ho said, expecting Bank Negara to opt for another 25 basis point increase when it does make a move.
The Malaysian ringgit has declined over 2 per cent since late August as the dollar strengthened with the expectations that the US Federal Reserve may signal an end to its easy money stance.
“If Malaysia raises its interest rates, the impact on the ringgit would be neutral,” said Wan Suhaimie Wan Saidie from Kenanga Investment Bank.
Malaysia’s stock market has also underperformed since the start of the year, with the bourse likely to dip further if Bank Negara decides to hike rates again.
“The market has been trading sideways. I don’t think investors would be excited with the rate hike,” said Wan Suhaimie.
“Bond yields would have room to come down due to the uncertainty in the market,” he said, adding that there is still overseas demand for Malaysian bonds as their yields were higher than those available in most developed economies. — Reuters
