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Inflation downtrend likely to continue

时间:2周前   阅读:1

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KUALA LUMPUR: While there are expectations that Bank Negara will further hike the overnight policy rate (OPR) by 25 basis points (bps) to 3% this week, economists have mixed views on the need for such a move and its effectiveness in combating inflation.

Malaysia University of Science and Technology economics professor Geoffrey Williams said there was no necessity for the central bank to raise rates, as “inflation is slowing and will be lower this year, anyway.”

“I think Bank Negara is under pressure to raise rates but in my assessment, it does not need to do so. Growth will be slow and the international environment is unstable.

“Also, the historical average for OPR is around 2.88%, and we are around that level now,” he told StarBiz.

Williams said an increase of 0.25% would not have no widespread impact but would affect individuals and specific companies.

“To that extent, it will not be necessary. So far, the increases in interest rates have not affected aggregate loan repayments or distressed loans but at an individual level, it will have an impact,” he noted.

Centre for Market Education chief executive officer Carmelo Ferlito said the central bank would go for another rate hike, as “the consumer price index (CPI) has been growing and the country’s producer price index (PPI) is back on a upward trend, after a short period of decline.”

According to Ferlito, there are over-expectations on the power of interest rates, in both directions. “While I do not believe that lower interest rate per se will stimulate the economy, I also do not believe that by simply raising them will contain inflation.

“In fact, the effects of the hikes will be visible in few years, at a different stage of the economic cycle,” he said.

Ferlito pointed out that there would be some contractionary effects on the economy with another OPR hike, but with a time lag.

“A serious fight to contain inflation implies cutting government spending and possibly remembering how inflation was created rather than having governments keep crying over spilled milk,” he said.

The PPI measures the prices of goods at the factory gate.

According to the Statistics Department, the PPI rose by 0.6% last November compared with 0.1% in last October, mainly supported by the agriculture, forestry and fishing sector (up 5.5%), mining sector (up 0.5%), as well as manufacturing and water supply sectors (up 0.2%).

Sunway University economics professor Yeah Kim Leng said with the latest core CPI still inching up to 4.2% last November and the gross domestic product (GDP) growth in 2022 likely to exceed the 7% upper end of the forecast range, the gradual normalisation of interest rates is expected to continue at Bank Negara’s monetary policy committee (MPC) meeting tomorrow and on Thursday.

Yeah pointed out that a 25 bps increase would bring the OPR closer to the neutral level that is accommodative to growth, while easing demand pressures and lowering inflation to the desired 2.5% to 3% range, thus achieving the 3.25% to 3.5% of the pre-pandemic range.

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