Economists expect rate hike next week

Although Malaysia’s year-on-year (yoy) export growth of 21.9% to RM52.3bil in May fell below market expectations, economists are still positive on an interest rate increase next week.
Reuters poll of 13 economists had forecast May exports to rise by 25.7% from a year earlier. Exports in April had expanded 26.6% yoy.

Meanwhile, the median estimate in a Bloomberg news survey of 14 economists was for a 26.6% increase.

The slower than expected growth according to the newswire, could be due to households holding back spending in some of the world’s largest economies and their governments were cutting outlays to trim budget deficits, suggesting global growth may slow after rebounding from last year’s recession.

Bank Negara raised its key rate by 25 basis points to 2.5% in May – a normalisation process after rate cuts during the global downturn.

AmResearch senior economist Manokaran Mottain told StarBizWeek that although the numbers showed slower-than-expected-growth, it was still at respectable rate.

“The economy is still at sustainable growth level where the weakness in external trade should be offset by robust domestic spending by both the Government and households.

“The economic momentum is unlikely to be affected and we are looking at around 8% real gross domestic product (GDP) growth in the second quarter from 10.1% in first quarter.

“And the 4.7% month-on-month decrease in May export data has nothing to do with Europe sovereign debt crisis and double- dip recession concern is not applicable to the region,” he said.

Thus, Manokaran said the interest rate hike next week would likely to go on.

“But after July 8, I think there will be a pause pending on the development then,” he said.

Standard Chartered Bank economist Alvin Liew was quoted by Reuters as saying despite the slower exports growth in April and May trade data, these two months of data still pointed to a decent second-quarter economic performance.

“It should still bode well for Malaysia’s second-quarter GDP this year although it is unlikely to outperform the preceeding quarter.

“As our expectations for a healthy recovery in first half of this year remains intact, we reiterate our view that the central bank is likely to continue normalising interest rates further to suit current economic conditions.

“We expect Bank Negara to hike rates by another 25 basis points at its July 8 policy meeting and thereafter keep the overnight policy rate on hold at 2.75% for the rest of the year, which is the normal rate for the OPR in 2010, in our view,” he said.



By SHARIDAN M. ALI
sharidan@thestar.com.my