Post date: Oct 24, 2010 12:43:5 AM
Friday October 22, 2010
PETALING JAYA: Despite China’s recent surprise interest rate hike, interest rates in Malaysia and the Asian region are generally expected to hold steady at least until year-end due to easing economic activities, manageable inflation and ample liquidity, said economists.
RAM Holdings Bhd chief economist Dr Yeah Kim Leng said with domestic inflation under control, most countries in the region appeared to have taken a pause in monetary tightening, rightfully remaining vigilant of the contagion from advanced economies’ weakening growth, persistent and high unemployment, and rising fiscal deficits and public debt levels.
“The pause is likely to continue until there is greater visibility in the advanced economies’ outlook over the next several quarters.
“It will also be conditioned by the price trends and strength of consumption and investment activities in each economy,” he told StarBiz.
Bank Negara, which began normalising interest rates since March with three 25-basis points hikes to date, had kept the policy rate on hold at 2.75% in its Sept 2 meeting and Yeah expects the pause to continue in its Nov 2 meeting.
Likewise, the Bank of Thailand kept its policy rate unchanged at 1.75% in its Oct 20 meeting.
Maybank Investment Bank chief economist Suhaimi Ilias said Malaysia and other countries in the region such as Australia, Thailand and South Korea were ahead of the curve in terms of interest rates.
“I don’t see any rise in interest rates in the region following China’s recent hike. I will be surprised if there are,” he said.
AmResearch Sdn Bhd senior economist Manokaran Mottain does not expect Bank Negara to raise interest rates until June next year as inflation was still manageable and economic activities were softening.
“The consensus is that there would be no more rate hikes in the region until year-end.
“Nevertheless, the expectations of investors following China’s rate hike are for other countries to follow suit so there may be more hot money flowing into the region,” he said.
OSK-DMG economist Enrico Tanuwidjaja said any interest rate hikes, especially in the South-East Asian region, were unlikely until next year.
He said Indonesia would not resort to a rate hike in the near future as it was fighting ample liquidity by raising the banks’ minimum reserve ratio while a rate hike in Malaysia would impact private investment and domestic consumer spending, thus affecting economic growth.
He added that interest rate hikes would also not be on the cards for Thailand which had implemented capital controls, and Singapore which had allowed for a faster appreciation of the Singapore dollar against the basket of currency and widened its currency’s trading band to manage capital inflows.
On Tuesday, China’s central bank raised borrowing costs for the first time since 2007, lifting the benchmark one-year lending rate to 5.56% from 5.31%.
Yeah said China had lagged the other countries in normalising its interest rate following aggressive cuts in most countries in response to the 2008 global financial crisis.
“Its 25 basis points hike, the first in more than two years, suggests that the Chinese government is seeking to rein in credit lending and asset inflation while remaining confident that its economy’s high growth can be maintained despite the deteriorating outlook of the advanced economies,” he added.