3.0pc key rate to stay, say research houses

Research house, OSK-DMG Group Economics, expects Bank Negara Malaysia to
hold the overnight policy rate (OPR) steady at 3.0 per cent for at
least the first half of this year due to easing inflation.

Malaysia's
average inflationary rate this year is projected to ease to 2.7 per
cent from 3.2 per cent last year, due to slower global growth which
would help commodity prices to ease, it said.

"With inflation
easing and policy rate accomodative to economic growth, we do not expect
the central bank to move on its policy rate any time soon," it said in a
research note today.

Inflation, as measured by the consumer
price index, continued to ease in December last year, rising by a slower
3.0 per cent year-on-year from 3.3 per cent in November 2011.

In
a separate statement, MIDF Research said food prices grew at the same
level as in November, suggesting its "stickiness" is due to the strong
demand from the festive season, effects from supply distruption and
weaker ringgit-US dollar that may have raised import bills.

It
said the cental bank would keep the OPR unchanged at 3.0 per cent in
January but was not ruling out the possibility that it may cut 25 basis
points in the second quarter of the year if the global scenario turns
uglier.

"Much will also depend on how the domestic economy crafts
out and exports, namely the primary related activities perform, since
electrical and electronics is expected to remain unexciting," it added.

If
Bank Negara reduces the OPR in the second quarter of this year, MIDF
Research said, normalisation can be expected to take place in the second
half.

Meanwhile, ECM Libra shared the same view, anticipating
the Monetary Policy Committee (MPC) to hold the current OPR at 3.0 per
cent this month.

"We justify our expectation by pointing to the
core inflation, which is still high. While the real OPR is no longer in
the negative region, other rates like the estimated rate on savings and
fixed deposits, are still slightly negative," it said.

Nevertheless, it noted, "this does give room for a OPR cut."

ECM Libra said the case for a OPR cut is stronger since the global economy outlook is softening.

The
research house said "it only expects an OPR cut of the typical 25 basis
points in March when the MPC meets for the second time this year.

"We
believe by March or April, the inflation rate would have slowed down to
a level where the real interest rate would decidedly be in the positive
region.

"We would like to highlight the MPC was comfortable with
the indicative real rate hovering around 0.8 per cent throughout 2010,"
it added. -- BERNAMA