Thursday 28 Mar 2024
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KUALA LUMPUR (March 24): CIMB Investment Bank Bhd said broadening inflation signs beyond energy and food prices, may nudge Bank Negara Malaysia in a "more hawkish policy direction".

For now, CIMB economist Michelle Chia said Bank Negara's monetary policy appeared "finely balanced", amid a more optimistic economic growth and higher inflation outlook for Malaysia. Bank Negara's overnight policy rate (OPR) is at 3%.

"A challenging policy trade-off confronts BNM (Bank Negara), as it balances risks of sustaining economic growth, achieving price stability and managing spillovers from an uncertain external environment," Chia wrote in note today. Chia said CIMB was maintaining its end-2017 OPR forecast at 3%.

Hong Leong Investment Bank Bhd economist Sia Ket Ee said the research firm also expects Bank Negara to maintain OPR at current level, in anticipation of Malaysia's modest economic growth this year.
 
"We maintain our GDP (gross domestic product) growth forecast of 4.5%, driven by primary sectors and construction projects. Given the potential output growth of 4.5-5.0%, we opine that GDP growth is unlikely to surpass this range in 2017 to cause overheating. Consequently, we do not expect BNM to alter OPR this year, due to modest growth trajectory," Sia wrote in a note today.

CIMB and Hong Leong's notes followed the release of Bank Negara's 2016 Annual Report and 2016 Financial Stability and Payment Systems Report yesterday.

Bank Negara said in its annual report that in 2017, the Malaysian economy is expected to grow between 4.3% and 4.8% from a year earlier.
 
"Headline inflation is projected to average higher in the range of 3.0% - 4.0% in 2017, given the prospect of higher global commodity and energy prices, and the impact of the depreciation of the ringgit exchange rate," Bank Negara said.

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