Key interest rate to hold at 3.50% in 2008

BANK Negara Malaysia is expected to maintain the overnight policy rate (OPR) at 3.50 per cent for the whole of 2008, according to Kenanga Research.“This is premise on the fact that Bank Negara would remain vigilant on maintaining balance between growth and price changes,” the research firm of Kenanga Investment Bank Bhd said today.“We reiterate our view that the downside risk to growth from external factors would temper domestic inflationary threat from rising fuel and food prices,” it said in a statement.“This would provide ample room for Bank Negara’s monetary management to leave the OPR unchanged at 3.50 per cent in 2008.”Commenting on the decision by Bank Negara’s Monetary Policy Committee to leave the OPR unchanged yesterday, Kenanga said this was widely expected but it sensed that the central bank was getting wary of the current external development with regard to the extent and impact of the US subprime debt crisis.“Hence, we detect a tinge of cautionary alarm in Bank Negara’s statement, followed by a pacifying assertion on ’the need to closely monitor the interaction between the downside risks to growth and the upward risks to domestic prices’, adding that it does not discount the fact that it may take ’pre-emptive measures... if necessary’,” the research firm said.Kenanga said though the strength of domestic demand is expected to sustain growth going into 2008, greater uncertainties in the global credit markets and weaker demand conditions in major economies have increased the risk of slower global growth.“This we believe could disrupt the potential upside of the domestic economy going into 2008. Hence, we maintained that Malaysia’s growth potential be capped and is projected to edge up to 6.1 per cent in 2008 from an estimated 6.0 per cent last year,” it said.Kenanga said with a fuel price hike being imminent, the government may no longer be able to bear the burden of escalating fuel subsidy, which has reached a record of about RM35 billion.“Hence, we expect that it would leave the government with little choice but to hike fuel prices after the general election which is likely held in th first quarter of 2008,” it said. — Bernama