THE surprising strong growth in the second quarter now poses a “dilemma” for research houses in figuring out whether Bank Negara Malaysia will take advantage of the positive environment to hike borrowing costs further.
The central bank’s monetary policy committee has two more scheduled meetings left this year.
Standard Chartered Bank, for instance, expects Bank Negara to bring forward its rate hike to the next meeting on September 18.
“The surprisingly strong second quarter gross domestic product (GDP) growth poses a dilemma to our current call for a 25 basis points policy rate hike in November.”
Growth momentum has been very strong even though very low imports and strong exports provided a large boost to second- quarter growth.
“This suggests that Bank Negara has the scope to tighten monetary policy slightly further,” it said, adding that it is forecasting a hike on September 18, and that November 6 is a close call.
Inflation is currently stable, private consumption is easing and the risk of financial imbalances is gradually being reduced.
Consumers will face more headwinds, providing scope for the central bank to wait until November to discern the impact of last month’s 25 basis points hike, it said.
“Given tight labour market conditions, the boost to private consumption ahead of the Goods and Services Tax implementation next April and strong external demand, we now see Bank Negara bringing forward its 25 basis points rate hike to September.”
It expects the monetary policy committee to pause in November to discern the impact of a cumulative 50 basis points rate hike.
StanChart also expects the ringgit to strengthen by the end of the second quarter of next year.
“Another 25 basis points hike this year is largely priced in by the markets and is unlikely to provide further ringgit support.”