KUALA LUMPUR (Oct 21): The Malaysian Institute of Economic Research (MIER) has expected the country’s economy to grow 5.7% in 2014 and between 5.5% and 6% in 2015, in gross domestic product (GDP) terms.

MIER’s forecast is relatively bullish as compared to the Ministry of Finance’s growth estimation of 4.7% in 2014, and between 5% and 5.5% in 2015.

Zakariah Abdul Rashid, executive director of MIER, said growth will be surprisingly high this year, citing the strong first half growth of 6.3% and with the momentum expected to continue into 2015.

“There will be strong contribution from external demand this year, although moderating domestic demand will still be the key driver of growth. Growth forecast is now slightly above socially efficient level of output, estimated at 5.5%, while output gap is positive, pointing to strong demand,” Zakariah told the press during a briefing here today.

Meanwhile, MIER has expected inflation rate to hover at 3.5% in 2014, before increase to 4% in 2015.

Zakariah said inflation will be largely domestic driven, due to the hike in the Overnight Policy Rate (OPR) to 3.25% in July 2014, the 20 sen fuel subsidy cut on Oct 2, higher direct cash transfers under Budget 2015, oncoming good and services tax (GST) implementation in April 2015 and also rising demand for higher wages and benefits.

He said the impact of the fuel subsidy cut remains to be seen, although the Prime Minister had said that fuel (Ron 95 and diesel) are zero-rated under the GST.

When asked, Zakariah opined that Bank Negara Malaysia (BNM) is unlikely to increase the OPR until end of the year.

“There is no urgency to raise the interest rate right up to the end of the year,” Zakariah said.

He opined that the BNM may not necessarily rein in inflation through OPR, but can use other tools such as reserve ratio, which only has impact on certain sectors.