ECONOMISTS SEE FURTHER RISE IN OPR THIS YEAR

By Christine Lim, Wan Azura, Nurul Jannah, Tengku Noor Shamsiah & Minggu Simon
Lhasa



KUALA LUMPUR, March 5 (Bernama) –- The move by Bank Negara Malaysia to raise
the Overnight Policy Rate (OPR) by 25 basis points has been expected by a number
of economists who are now projecting a further rise in the OPR by year end.

The central bank's decision to raise the OPR to 2.25 per cent at its
Monetary Policy Committee meeting this evening was expected, said Affin
Investment Bank economist, Alan Tan.

The stronger economic growth for the fourth quarter last year provided the
room for Bank Negara to normalise interest rates after cutting it to a
historical low last year, he said.

Tan said the process of normalising interest rates amid the backdrop of
limited pressure on inflation coincide with the stronger-than-expected 4.5 per
cent year-on-year gross domestic product growth in fourth quarter last year.

He said with prevailing uncertainty in the global economic recovery, the
increase in interest rates should not be seen as tightening of monetary policy
but rather the normalising of interest rate which has been at record low, partly
to address the issue of financial imbalances.

Tan said he also expected a total of 50 basis points hike in OPR this year,
which will bring the OPR to 2.5 per cent by end of the year.

Bank Islam Malaysia Bhd's Chief Economist, Azrul Azwar Ahmad Tajudin,
said he expected an even bigger increase in the OPR, and was looking at 2.75 per
cent as a strong possibility at the end of this year.

"I expect they (Bank Negara) will increase by 25 basis points at each
Monetary Policy Meeting until July this year, then it will take a breather until
end of the year," he told Bernama, expecting the move to be gradual.

He said the ringgit should gain some ground following the OPR hike and
strengthen further going forward, while the government's decision not to make
a fuel price adjustment would ease the pressure of inflation this year.

"With such a modest inflation outlook, I don't foresee an aggressive
monetary tightening campaign," he said.

RAM Holdings Bhd Chief Economist, Dr Yeah Kim Leng, expected another 75
basis points increase in the OPR this year and expected the rise to be
gradual and to the pre-crisis level.

He said 3.25-3.5 per cent should be a normal level for the OPR to ensure
sustainable growth in the country.

Yeah said raising the OPR signalled Bank Negara's confidence in the economic
recovery.

"The confidence is rising. We can see that the GDP projection is
achievable," he said, adding that many were expecting GDP to grow as
much as five per cent this year with the Government looking at 6.0 per cent.

He also expected the ringgit to strengthen further this year, in line with
other Asian currencies.

Yeah also expect the local unit to hit 3.2-3.3 level against the US dollar
by end of this year.

"The uptrend will continue because of the recent Euro and Pound weaknesses.
Asian currencies will appreciate faster than other currencies," he added

Malaysian Investors Association president Dr P.H.S.Lim attributed the
hike in interest rate to the better economic performance in the last quarter of
2009, and the US Federal Reserve move to increase interest rate by 0.25 points
to 0.75 points.

With a better economic background, interest rate will move up in line with
global economic growth and to combat inflation, he added.

--BERNAMA