No justification for interest rate hike: Kenanga KUALA LUMPUR: Kenanga Investment Bank Bhd has taken the contrarian view and believes that an interest rate hike is unlikely to materialise today, saying that it would be unjustified given jittery economic fundamentals that would not be able to take such a hike. Most analysts opine that Bank Negara is likely to raise the overnight policy rate (OPR) for the first time since May 2011 today, even though they tend to differ on the quantum of increase, between 25 basis points (bps) and 50 bps. The OPR currently stands at 3%. Bank Negara is scheduled to hold its latest monetary policy committee (MPC) meeting this evening. Kenanga Investment Bank deputy head of research Wan Suhaimie Saidie (pix) opined that this is not the right time to raise interest rate as economic growth is expected to trend lower in the second half compared with the first half of the year. Due to softer external demand and slow down in other parts of the world, I dont think Bank Negara will raise interest rate, unless they revise the gross domestic product (GDP) higher, he told a media briefing here yesterday. Wan Suhaimie said as Malaysia is an open economy, the interest rate outlook will be externally dependent, whereby it has been observed that Bank Negara would shift towards tightening mode when the global manufacturing PMI breaches 54.0. However, it may take at least another three to six months before the index breaches 54.0, he said, adding that there is little reason for Bank Negara to raise the OPR for the rest of the year. Wan Suhaimie believes with the implementation of the goods and services tax (GST) next year, the local economy may even slow down for at least two quarters, making the case for an interest hike far from compelling. Kenanga expects GDP in the first half to be close to 6%, while second half is projected to average by 5.2%, with a full year growth rate of 5.5%. Wan Suhaimie said instead of raising the interest rate, Bank Negara could take additional macroprudential measures to address imbalances in the financial system, such as reducing the loan-to-value ratio and debt-to-income ratio. According to data compiled by Kenanga, Bank Negara is one of the most conservative central banks in the world, with only 10 rate adjustments made over the past 10 years. M&A Securities concurred with Kenanga on the unlikelihood of a hike in OPR today albeit for a different reason. Policy decisions would need to get the cabinet endorsement first. Being a caring government that would like to avoid political backlash, we think that the government would prefer Bank Negara Malaysia (BNM) to defer that to the September MPC meeting, it said in an economic report yesterday. It explained that on the back of rising cost of living and the upcoming stress of the goods and services tax, the last thing BNM and hence, the government would want to see is the adjustment be a burden the people. As 55% to 60% of Malaysian population, as in the Muslims would be observing the month of Ramadan of which their spending would increase, the government would risk its reputation if it proceeds with a policy hike. There is a small chance that the government would execute this in our opinion, said M&A analyst Rosnani Rasul. It said impact to the ringgit would also be more conducive if policy rates get adjusted in September and that an adjustment of 25 bps would suffice. With no hike in the OPR, volatility in the market will continue and is likely to see the ringgit fall back to 3.20 to 3.30, Wan Suhaimie opined. The ringgit has been rising lately, surging to as high as 3.1860 early this month in anticipation of an interest rate hike.
Posted on: Fri, 11 Jul 2014 00:55:57 +0000
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