KUALA LUMPUR: Bank Negara has maintained the overnight policy rate (OPR) at 3% after the monetary policy committee (MPC) meeting yesterday, a move widely expected by economists.
Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2012/7/6/business/11613238&sec=business
Published: July 06, 2012
Source from (Business Times): http://www.btimes.com.my/Current_News/BTIMES/articles/rup05bb/Article/
Published: July 06, 2012
The central bank said headline inflation was expected to remain moderate for the remainder of 2012. Alliance Investment Bank Bhd chief economist Manokaran Mottain said Bank Negara’s move to maintain the OPR was expected.
He said the last time the central bank reviewed the OPR was in May 2011, with a 25-basis point hike. Since then, the benchmark policy rate has been maintained at 3%.
In a statement, the central bank said the pace of the global recovery had moderated in the recent months. It added that the latest data pointed to slower economic activity and more challenging growth prospects in several regions around the world.
Bank Negara said although pressures in the international financial markets have receded following the recent policy announcements to address the European crisis, a number of important policy issues remain unresolved and continue to unsettle financial markets.
“Economic activity in several of the advanced economies continues to be affected by ongoing fiscal consolidation, impaired financial intermediation and weak labour market conditions. In emerging economies, while domestic demand remains an important source of growth, exports are affected by weak external demand.”
In the domestic economy, recent data and surveys of business conditions suggest that consumption and investment activity remains resilient.
Looking ahead, Bank Negara said domestic demand would continue to be the anchor of growth.
“Household spending continues to be supported by stable employment conditions and income growth. The strong investment activity is mainly led by the domestic-oriented industries, the oil and gas sector and the steady progress in the construction of infrastructure projects,” it said.
adding that headline inflation was expected to remain moderate for the remainder of 2012.
The central bank said with some excess capacity in the economy, the strength of domestic demand was not expected to result in inflationary conditions.
“Global energy and commodity prices are likely to be contained given the weak global conditions. However, upside risks to inflation could emerge should disruptions to global supply result in higher global prices for these commodities,” it added.
In the MPC’s assessment, there continues to be considerable uncertainties in the global economic and financial environment. The MPC will continue to carefully assess these evolving conditions and their implications on the overall outlook for inflation and growth of the Malaysian economy.
Going forward, Manokaran expects the central bank to keep the rate steady, as long as growth remains healthy coupled with low inflation based on several assumptions.
Firstly, he said, at least a break-up of the Eurozone was avoided for now after the recent Greece elections and EU Summit, but a deeper recession appears certain. “Our outlook for a base-case for Malaysia is fitting – we are now projecting a slower gross domestic product (GDP) growth of 4.2% for this year, decelerating from 5.1% last year.”
“In the short-term, we expect real GDP growth to stay around 4% in second quarter 2012, moderating from 4.7% in first quarter – in line with the recent slowdown in economic activities and increasing vulnerability to the major industrial economies. The growth is still supported by strong domestic demand, though moderating from 10.4% in the final quarter of last year, to 7.4% in second quarter,” Manokaran said.
“With regard to inflation, we expect further moderation in prices ahead, at least for the next one quarter, on account of the impact of easing global commodity prices, global economic slowdown and weakening domestic demand. We expect price growth to moderate to between 1.4%-1.6% in this quarter, from 1.7% in May. Overall, we are now forecasting the consumer price index to hit 2% in 2012, moderating sharply from 3.2% last year.”
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