Overnight Policy Rate to remain unchanged at 3.25 pct in 2015

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KUALA LUMPUR: Two research firms have projected that the Overnight Policy Rate (OPR) will be kept unchanged at 3.25 per cent throughout 2015.

This is despite some concerns on the potential increase in inflationary expectations, following the implementation of the Goods and Services Tax (GST).

Kenanga Investment Bank Bhd said a hike in the OPR is possible towards the end of the second half of 2015 (2H15), if and when the US Federal Reserve raises its rates.

It said this was also on condition that the domestic economy had rebounded enough, following an anticipated slower growth in 2015, from the impact of the implementation of the GST, and weak global demand.

Affin Hwang Research said the interest rate differential between the US Fed funds rate and Malaysia’s OPR would likely remain wide and positive.

“If the US Fed is to raise its policy rate gradually by 75 basis points (bps) in late 2015 from the current level, we believe BNM is likely to maintain its own policy rate, as the interest rate differential between the US and Malaysia will still be around 225 bps.

“By keeping its OPR unchanged at 3.25 per cent in 2015, this will allow Bank Negara to cushion the impact to the domestic economy, especially private consumption, from the heightened uncertainties due to global economic developments,” it said in a note yesterday.

Bank Negara increased its OPR in July 2014 to 3.25, after keeping it at three per cent since 2011.

At its last Monetary Policy Committee meeting in September 2014, it decided to maintain the rate.

On the monetary policy front, Affin said BNM may have to take on the responsibility of ensuring that the economy remains healthy and does not slow sharply.

On inflation, Kenanga Research said it would be pressured by cost-push factors, mainly the GST.

“However, lower oil prices will help mitigate the effect, though overall consumption is expected to moderate for most of the year,” it added. — Bernama