Economists: 3pc key rate widely expected

Bank Negara's decision to keep the overnight policy rate (OPR) unchanged at three per cent is a widely anticipated move, economists said today.

They said the current monetary policy was still accommodative for growth prospects this year and that inflationary risks remain prevalent despite indications that inflation might have peaked in late last year.

"There's a lot of liquidity in the system and it is not timely to reduce the rate as some analysts had expected," MIDF Research senior vice-president Zulkifli Hamzah told BERNAMA.

Some analysts had expected that Bank Negara might reduce the rate based on the yield movements in the market which were predicted to come down, he said.



"I think the overnight policy rate (OPR) will not increase or reduce in the first half of this year, but will increase in the second half," predicted Zulkifli, who is also MIDF Research Department head.

Bank Negara, in a statement today, said global growth conditions have deteriorated in recent months and it would continue to assess carefully the risks to domestic growth and inflation.

"The statement clearly suggests that the central bank keeps its option open for a rate cut, going forward," said Gundy Cahyadi, an economist with OCBC Bank.

With growing concerns on the growth front, he expected Bank Negara to lower its policy rate in the next session to 2.75 per cent before leaving it there for the rest of the year.

"Financial conditions have been loosened substantially since mid-2011, there is still some room for further loosening, going forward, as current conditions are still arguably tighter compared to the 2008-2009 experience," he added.

Meanwhile, Mayban Investment Management said Bank Negara's decision was expected by market participants as the central bank has decided to adopt a wait-and-see approach to assess the state of the economy.

"Headline inflation, while expected to moderate this year, could face upward pressure from higher food and commodity prices in the event of supply disruption," managing director and chief executive officer Nor Azamin Salleh said.

He also expects domestic interest rates to remain steady at least in the near term but did not discount monetary easing by Bank Negara should there be a severe deterioration in the external environment.

Jason Fong, an economist with RAM Holdings Bhd, said the current level of the OPR remains accommodative to growth and gives Bank Negara sufficient space to stimulate the economy if external conditions continue to deteriorate drastically.

He said Bank Negara has maintained its current stance to prevent excessive borrowings particularly from the household sector.

"A reduction in the OPR may spur more credit and may put the financial sector at risk which already faces possible headwinds from a domestic growth slowdown," he said.

Leif Eskesen, HSBC Bank chief economist for India and Asean, said Bank Negara did not join other central banks in cutting rates amid concerns over the weak global economic backdrop.

"Credit growth has been strong and the momentum is holding up, which makes Bank Negara reluctant to ease policy settings.

"Nevertheless, we do expect Bank Negara will cut rates this year and by a total of 50 basis points during the first half of this year," he added. -- BERNAMA