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KUALA LUMPUR (Feb 2): OSK Investment Bank Bhd says that although Bank Negara Malaysia (BNM) has the room to cut the overnight policy rate (OPR), it is more likely that a rate hike of 25 basis points to 3.25%, sometime in the second half of the year can be expected, as inflationary pressures build up.
"Bank Negara has the room to cut the OPR should the need arises. But given the balance of risks, we expect Bank Negara to hold the OPR steady at 3.0 per cent, for at least the first half of 2012," said OSK Investment
In a research note on Thursday, OSK Investment also said it believed that the central bank would cut the OPR, only if the global environment deteriorates significantly.
On Tuesday, BNM decided to maintain the OPR, at three%.
OSK Investment said more likely than not, risk could be bias to a rate hike instead as inflationary pressures could build up, as a result of healthy private and public consumption spending.
It said inflation looks unlikely to pose a threat to the economy.
OSK Investment expects favorable base effects and slower global growth to reduce inflation this year, which is expected to average 2.7%.
"However, inflation can still rear its ugly head with the "risks to inflation", coming from supply disruptions that would result in higher food and commodity prices," it said.
Meanwhile, MIDF Research said concerns are still brewing over the global economic and financial conditions.
Problems such as the European debt crisis and heightened market volatility are expected to continue applying downward pressure on growth in the advanced economies and raise the downside risk to global growth, it said.
MIDF Research expects BNM to keep rates unchanged at the current level this year, given the global economic and financial conditions remaining uncertain as well as domestic economic growth leaning on private expenditure, complemented with public spending. — Bernama
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