M'sian interest rate will be unchanged, or see a cut

PETALING JAYA: While most economists polled by StarBiz reckon that Bank Negara will keep the interest rate unchanged, there are others who think that it may be lowered to spur growth.
Citigroup Inc Singapore-based senior economist Zheng Kit Wei said in a report that there was still a 40% chance of a rate cut as he expected inflation to ease further.
“While budget measures should cushion consumption, sustained low levels of manufacturing activity could potentially undermine consumer demand, and there may be scope for Bank Negara to provide additional support to leveraged households with small overnight policy rate (OPR) cuts,” he said.

He expects the central bank to take a more “pre-emptive” approach to cut rate by 25 basis points, in view of the fact that inflation may fall below 3% by December.

“With the output gap unlikely to turn significantly positive in 2012 under a 5% gross domestic product forecast, demand-pull inflation should be kept at bay,” he said.
This view is in line with expectations that the CPI figure for September, due to be released today, will indicate inflation is not on the rise.
A Bloomberg survey of economists indicated that the median for the CPI will be unchanged at 3.3%.
Any increase in the interest rate would be aimed at spurring growth.
However, other economist reckon that interest rate would be unchanged.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng said the upcoming CPI should either level off or ease in line with declining raw material and commodity prices.
He said Bank Negara was not likely to make any adjustments to the OPR for the rest of the year as uncertainties still prevailed in the West, especially with the prolonged sovereign debt crisis.
The OPR was unchanged at the last meeting on Sept 8, and the central bank is likely to maintain interest rate at 3% in its next and the year's final policy meeting on Nov 11.
“The upcoming CPI data will confirm the momentum of policymakers with the shift of focus to maintain growth, rather than trying to control inflation,” he said.

Balancing act: It is speculated that Bank Negara may cut rates by 25 basis points in line with the latest CPI figure which indicates that inflation is not on the rise.

Affin Investment Bank Bhd economist Alan Tan said in a recent report that he expected Bank Negara to leave the OPR unchanged at 3% until the end of 2011.
“There is the possibility that Bank Negara may cut interest rate in early 2012 should the European crisis and sluggish global economic growth deteriorate into a deep downturn,” he said.
Meanwhile, Asian Development Bank managing director Rajat Nag said Asia did not need a “dramatic shift” in monetary policy to counter global growth risks as the region's expansion was robust and inflation pressures remained.
“The delicate balancing act is between growth and inflation but inflation still remains a concern in Asia.
“Asia does not need to have any dramatic shift because many countries including China and India have been tightening their monetary policy for quite some time in response to inflationary pressures,” he said.
He added growth in Asia would still be fairly robust unless the eurozone crisis got out of control.
source :  The Star Online