GDP GROWTH TARGET OF BETWEEN FIVE TO SIX PCT FOR 2011 SHOULD BE EASILY MET

KUALA LUMPUR, April 18 (Bernama) -- Malaysia's gross domestic product (GDP) growth target of between five per cent to six per cent should be easily attainable for this year, while inflationary pressures continue to build, says Goldman Sachs Global Investment Research.

In a note Monday, it said the main drivers continue to be the robust domestic demand benefiting from the relatively accommodative monetary policy settings thus far, as well as the trickling down of wealth effects from higher commodity prices than previously expected.

"We raise our real GDP growth forecast for this year to 5.5 per cent from 5.2 per cent previously," said Goldman Sachs.

"We expect the output gap to turn positive in the second half of this year and move more into positive territory in 2012, further underpinning inflationary pressures amidst elevated global commodity prices," it added.

The research firm also revised the consumer price index (CPI) inflation forecast for the year to 3.6 per cent from 3.4 per cent previously.

On the back of rising inflationary pressures and the likely robust domestic demand recovery, it expects Bank Negara Malaysia to resume its policy rate normalisation and restart the rate hike cycle at the upcoming meeting in May.

It will be the first rate hike for this year, after the central bank raised rates for a total of 75 basis point last year.

Goldman Sachs said the high household leverage is likely to be a
consideration against sharp rate hikes.

Malaysia currently has one of the highest household debt ratios in the region, close to 80 per cent of the GDP.

The concern over raising the debt burdens of households with sharp rate hikes is likely to prompt a relatively moderate rate hike cycle.

"We continue to expect a total of 50 basis points of rate hikes this year, which is currently around what is priced by the market for the remainder of the year," it said.

At the same time, Goldman Sachs said Bank Negara (Malaysia's Central Bank) is likely to rely on other areas of tightening to reign in excessive liquidity and credit growth.