Friday, July 9, 2010

Malaysia raises key interest rate to 2.75pc

Bank Negara Malaysia raised borrowing costs for the third time this year, bringing the benchmark interest rate to 2.75 per cent.

The monetary policy committee said the new level of the Overnight Policy Rate (OPR) was "appropriate and consistent" with its current assessment of the growth and inflation prospects.

"The stance of monetary policy continues to remain accommodative and supportive of economic growth," Bank Negara said in a statement yesterday.

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

The latest increase was not unexpected as slightly over half of research houses polled by Business Times were expecting the 25 bps hike.

HSBC Bank Asian economist Wellian Wiranto said the new 2.75 per cent policy rate is most likely considered normal by BNM.

"With such clouds of concern unlikely to dissipate any time soon, the central bank will most likely keep the policy rate at the new level for a while, at least until the end of the year," he said.

The central bank said volatility in the international financial markets has increased following concerns over the ongoing sovereign debt crisis in several advanced economies.

"Going forward, while the assessment is for the global recovery to continue, there is increased risk that the global growth momentum could moderate," it said.

On the domestic front, trends in industrial production, financing activity, labour market conditions and external trade indicate that economic activity has remained robust in the second quarter.

But the pace of growth could see some moderation, it warned.

The domestic economy is expected to remain strong with continued improvements in private consumption and investment, and augmented by public investment and spending, it added.

Although inflation posted modest increases in April and May, Bank Negara expects prices to rise at a gradual pace in the coming months, with improvement in domestic economic conditions, and taking into account possible adjustments in administered prices.

It also expects inflation to remain moderate going into 2011.

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