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NEWS UPDATES 9 July 2010

Malaysian rate hike unlikely

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The possibility of another Overnight Policy Rate (OPR) hike in the second half of this year is unlikely, with growing concerns over euro debt crisis, says Kenanga Research and reported by the new Straits Times.

It said this would depend on the outlook for the second half of this year as the global growth momentum is expected to wither with the base effects wearing off and fiscal policy support diminishing.

The research firm said Bank Negara Malaysia (BNM) may momentarily pause before resuming its intention to normalise interest rates.

“It may take a breather to monitor closely and assess the global economic situation before deciding another rate hike,” it said in a research note today.


However, the central bank may likely resume its normalisation rate track in 2011 if domestic demand strengthens further and global economic growth stabilises.

Bank Negara raised OPR by 25 basis points to 2.75 per cent yesterday. The central bank said the floor and ceiling rates of the corridor for the OPR are correspondingly raised to 2.5 per cent and three per cent, respectively.

Yesterday's hike was the third this year after 25 basis points hikes each in March and May.

Perhaps, the main justification for the rate hike was BNM's positive note that global recovery has continued in the second quarter, supported by robust and broad-based growth in most emerging economies, in particular Asia, and a moderate recovery in advanced economies.

"Along with the better manufacturing data in May, we reckon it would likely support a reasonably high GDP growth in the second quarter.

"Our estimates are that GDP could grow at least eight per cent to nine per cent in the second quarter," it added.

Bank Negara also remained concerned on the volatility in the global financial markets following the on-going sovereign debts in several advanced economies.

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