The inflation rate in Malaysia in August rose 3.3% year-on-year, compared to the 3.2% consensus of economists polled by Reuters.
PETALING JAYA: The overnight policy rate (OPR) is expected to stay above the inflation level throughout the year, according to AmInvestment Research.
Unlike in 2017, the research house said when it projected the economy would register a negative real returns throughout the year, for 2018, it expect the economy would sit in the positive real returns throughout the year.
“Headline inflation is envisaged to moderate in 2018. While Bank Negara expects inflation to hover 2.0-3.0%, we project inflation to average around 2.8%, which is our base case while our lower end is 2.5% in 2018.
“Room for inflation to moderate in 2018 are due to a stronger ringgit against the US dollars that will help ease potential upwards pressure from import prices; a stronger ringgit reduces the transfer pricing from producers consumers; and high base effect,’’ it noted in a research report.
It said that the central bank’s projection of the domestic GDP to grow around 5.5%-6.0% in 2018 was aligned with AmInvestment projection of 5.5%. The economy in 2018 would be driven by domestic activities i.e. private expenditure on the back of improving business sentiments and consumer spending.
Besides, optimism on the performance of exports on the back of conducive external environment due to resurgence of global trade would support the domestic economic performance plus stable commodity prices.
Investment would continue to support growth underpinned by capital expenditure in the manufacturing activities, services and continuing roll-out of large-scale infrastructure projects, AmInvestment said.
“While our base case projection for the OPR is a one rate hike in January 2018 which already materialised, bringing the levels to 3.25%, we have placed a 30% chance of another rate hike either in September or November.
“Much will depend on the pace of rate hikes by the US Fed, to which we are currently looking at three hikes with the fourth hike at a 25% chance occurring in December; the level of domestic inflationary pressure emanating from demand pull; and the speed at which Bank Negara will want to normalise the policy rate which we believe is at 3.50%,’’ it added.
It noted that while the debt servicing ratio of most households remained intact (median:032.7%), there is a need to be watchful on the lower income households i.e. those with income of below RM3,000 a month since this segment may encounter challenges in meeting loan repayments due to the higher cost of living.
Household debt grew at a slower pace by 4.9% in 2017 from 5.4% in 2016, the slowest since 2010. Slower growth in the areas of personal financing, loans for purchase of motor vehicles and non-residential properties is the key factor.
Thus, the household debt/GDP eased to 84.3% in 2017 from 88.3% in 2016 and the research house expect the trend to improve in 2018 on the back of improving macro conditions, wage growth, stable inflation and healthy labour market.
On the property front, it said that the property credit risk was not out of the woods yet, especially for high-end residential properties, office space and shopping malls.
The government had announced the freeze on new luxury residential properties by developers in an effort to rebalance the supply of houses in the property market. However, there continues to be a shortage in supply of new affordable houses in meeting demand, the research house said.
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