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NEWS UPDATES Asean Affairs        22  April 2011

No rate increase in Malaysia

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Last month's inflation, which rose to an almost two-year high on higher food and commodity prices, is not likely to prompt policymakers to raise the benchmark interest rates at next month's monetary policy committee meeting on concerns over economic growth.

Instead, economists expect the statutory reserve requirement (SRR), currently at 2 percent, to be raised further while the overnight policy rate (OPR) is expected to be maintained at 2.75 percent.

The SRR is the amount of funds that commercial banks are required to keep with the central bank, interest-free, and is an instrument to manage liquidity.

They will look at core inflation comprising the non-subsidised items and if prices continue to go up, then that would be a concern.

MIDF Amanah Investment Bank Bhd chief economist Anthony Dass expects Bank Negara to raise the SRR rather than the OPR as inflation, though on the rise, is “still at tolerable levels.” He said policymakers would be cautious about raising the OPR too fast as this would compromise growth.

“They will look at core inflation comprising the non-subsidised items and if prices continue to go up, then that would be a concern,” Dass added.

He said in a report that Bank Negara was likely to raise the SRR by 100 basis points to 3% but maintained that the OPR would likely reach 3.25 percent by year-end.

Data released by the Statistics Department on Wednesday showed the consumer price index (CPI) for March increased by 3 percent to 102.4 compared with a year ago while for the first three months of the year, the CPI increased 2.8 percent compared with the previous corresponding period.

Much of the increase in the CPI was contributed by food and non-alcoholic beverages, and non-food items, which rose by 4.7 percent and 2.3 percent respectively from a year ago.

Other items which saw increases included transport (4.4 percent), housing, water, electricity, gas and other fuels (1.5 percent), alcoholic beverages and tobacco (6.4 percent), restaurants and hotels (5.1 percent) and health (2.5 percent).

Items in the CPI which saw a price decline were clothing and footwear (0.5 percent) and communication (0.3 percent).

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