KUALA LUMPUR, Nov 14 — Market players are not discounting the possibility of another 25-basis-point hike in the overnight policy rate (OPR) by Bank Negara Malaysia (BNM) next year.
RAM Rating Services Bhd said the increase could be warranted in the second half of next year if secondary inflationary effects were evident and posed significant downside risks to the sustainability of domestic economic growth.
“With the full list of Goods and Services Tax (GST) zero-rated items now confirmed and a better indication of the government’s subsidy rationalisation plans next year, our inflation forecast have been revised marginally upwards to 4.1 per cent this year and 4.3 per cent next year.
“This will pose a risk to the resilience of domestic demand, hence we expect the OPR to hold at its current level of 3.25 per cent, at least until the middle of 2015 when it becomes clearer whether the second-round effects of inflation will be manifested,” it said in a statement today.
UOB Global Economics and Markets Research said while Malaysia’s moderate growth prospects for next year and the expansion of Japanese monetary easing could shift market expectation away from another rate hike in the first quarter of 2015, the OPR hike could not be discounted.
“This is in consideration of the negative real interest rates next year arising from the GST implementation, albeit a temporary one,” it said in a statement.
“The weaker ringgit could also contribute to a higher inflationary environment. As such, we still see some risk of a 25 basis points interest rate increase in the first half of next year.” — Bernama
