Bank Negara's rate decision risky, says analyst

BANK Negara Malaysia's decision to leave its Overnight Policy Rate (OPR) unchanged at 3.5 per cent is a risky one which could affect its credibility, an analyst said.HSBC Bank economist Robert Prior Wandesforde from the Asian economics team in Singapore said Bank Negara was taking risks with its credibility and he expects this to be reflected in the performance of its domestic asset markets.Currency dealers expect to see a further ringgit sell-off this week. The currency fell to its lowest level in a fortnight on Friday, losing 0.2 per cent to 3.2490 versus the US dollar.Bank Negara, at its monetary policy meeting on Friday, kept its OPR unchanged at 3.5 per cent, a position that has been maintained since April 2006. It bucked the trend by the central banks of Vietnam, the Philippines, Indonesia and India to combat inflation with rising energy and food prices globally.
The central bank also revised its average inflation outlook for the year to a range of 5.5 per cent to six per cent from 4.2 per cent year-on-year in June.Prior Wandesforde said he was puzzled over Bank Negara's move, given that the OPR is more than four percentage points below June's inflation rate of 7.7 per cent."If the highest headline inflation rate in 27 years, four consecutive quarters of double-digit real private consumption growth, the strongest year-on-year rise in bank credit since 1998 and signs that wage growth is picking up were not enough to prompt a hike, then it is hard to see what would."This is emphasised further when one considers that the central bank itself has previously suggested that its interest rate stance is accommodative," he said.Prior Wandesforde said the lack of action by Bank Negara indicated that it was concerned that growth would slow sharply although Malaysia is the "key beneficiary" in the region of strong commodity prices."Although export growth is likely to soften, it is not enough to derail the country's gross domestic product growth rate." -www.btimes.com.my