PETALING
JAYA: Bank Negara may raise its overnight policy rate (OPR) by 25
basis points (bps) to 3.25% next year due to inflationary pressure and a sharp
increase in domestic demand, analysts said.
RAM
Holdings Bhd group chief economist Dr Yeah Kim Leng told StarBiz that
there should be a sharp pick-up in the inflation rate, mainly above 3%, along
with a significant jump in domestic demand for the central bank to increase the
OPR rate.
“The
OPR is unlikely to increase in the first quarter due to the risk that the Federal
Reserve might taper its quantitative easing programme. The OPR could
possibly be revised as early as in the second quarter depending on the
inflationary pressure,” he said.
Yeah
said Bank Negara might increase the rate by 25bps in the second
quarter and that the hike would only be made depending on the country’s
economic growth momentum and how fast the inflation rate rises.
Meanwhile, Alliance
Research chief economist Manokaran Mottain believes that the
chances of Bank Negara increasing its OPR are “greater” in the second
half of 2014 due to inflationary pressure.
“For
the first half, inflation may increase to 3% mainly due to cost-push from
further subsidy rationalisations and tariff adjustments. Usually, the central
bank would not react on cost build-up,” he said.
Cost-push
arises when businesses increase prices to maintain or protect profit margins
after experiencing a rise in their costs of production.
He
sees measures coming in in the second half of the year when demand rises to
heighten demand-pull pressures in the second half of the year, which might see Bank
Negara revising its OPR by 25bps to 3.25%. Demand-pull inflation, which
occurs when total demand for goods and services exceeds total supply, responds
better to monetary tightening.
He
is expecting the inflation rate to increase to 3.2% by end-2014.
RHB
Research Institute has lowered its earlier expectation of a 50-bps hike
next year, as the central bank’s focus is on economic growth, which is still
vulnerable to setbacks, while the rise in inflation is viewed as “temporary”
due to policy-induced factors.
In
a note to clients, the research house said that Bank Negara may raise
its OPR by 25bps to 3.25% from the third quarter of 2014 onwards due to price
pressure build-up from a possible fuel price hike in 2014 and the
implementation of the goods and services tax in 2015.
