Business

Published: Thursday July 5, 2012 MYT 3:26:00 PM

Alliance Research expects OPR to remain at 3% for rest of 2012


KUALA LUMPUR: Alliance Economics Research expects Malaysia's monetary policy to continue to remain accommodative of growth, while also ensuring adequate levels of price stability in recent months.

In its report on Thursday, it expected the monetary policy to remain unchanged due to falling inflation rates since the beginning of the year.

Bank Negara's monetary policy committee, which is meeting on Thursday, would announce its policy after market close.

Alliance Research said it also took note of the central bank's assertion that there was ample room for policy adjustment, in the event of a deeper economic slowdown impacting the domestic economy.

"The BNM governor has also repeatedly said that the overnight policy rate (OPR) is at an accommodative level and will remain steady for the rest of the year. As such, we expect the OPR to remain unchanged at the current level of 3% for the rest of the year," it said.

As for the second half of 2012, the research house said given the continued uncertainties in the global economy, it is doubtful of a meaningful recovery in the second half of the year.

Alliance Research said any recovery would only be minimal, adding that it forecasts economic growth to remain stagnant at 4% in 3Q and 4.3% in the final quarter of the year.

While the projected GDP growth of 4.2% for Malaysia was based upon the assumptions of a global economic moderation with some resolution to the debt crisis (with Greece remaining in the EU) as well as timely and full implementation of measures announced in the 2012 Budget and Economic Transformation Programme, it noted several downside risks to growth.

The research house said these included a further deterioration in global investor confidence, the increasing likelihood of a prolonged Euro debt crisis as well as a steeper slowdown experienced in the larger regional economies such as China.

As for the Malaysian economy, it added one of the key risks wa the rising level of fiscal deficit (from the estimated 4.7% of GDP in 2012) due to the potential increase in subsidies as a result of high global crude oil prices and lower GDP growth.

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