PETALING JAYA – With the increasing expectations of more than one interest rate increase by the US Federal Reserve next year as well as continued large outflow of capital and a persistently weak ringgit, Kenanga Research expects Bank Negara Malaysia to have more reasons to leave interest rates unchanged next year.

Nevertheless, the research house reiterated that the current stable inflation situation will provide room for the central bank to ease the monetary policy if needed.

“On the expectation that the economy is stabilising, BNM is likely to maintain the Overnight Policy Rate at 3.00% in 2017,” it said in a research note.

Kenanga Research is of the view that inflation will likely gain momentum and stay higher next year, partly in view of the ongoing government subsidy rationalisation plan, brighter prospect for crude oil price recovery and an expected improvement in domestic demand in 2017. Full-year inflation forecast for 2017 is maintained at 2.3%.

Meanwhile, inflation is expected to rise in December following 1.8% in November, a 0.4% from 1.4% in October, in consideration of the effect of the cooking oil subsidy rationalisation in November, disrupted food supply due to the monsoon season, weaker ringgit and year-end festivities.

However, Kenanga Research noted that a decrease in fuel price in December (5 sen cut in the unleaded and diesel price) could partly offset the inflationary pressure and keep the headline inflation in check. “We thus project the average Consumer Price Index growth to be higher at 1.7% year-on-year in Q4 16, bringing its full-year growth within our forecast of 2.1% year-on-year,” it said.

– Sundaily