KUALA LUMPUR: United Overseas Bank (UOB) expects Bank Negara Malaysia (BNM) to hike the overnight policy rate (OPR) to 3.25 per cent in the second quarter next year, due to moderate growth in inflation.
BNM has maintained the OPR at 3.0 per cent since May 5, 2011.
UOB Senior Economist Alvin Liew said the government's subsidy rationalisation programmes, although positive for revenue, would add to inflationary pressure going forward.
"On average, we are projecting inflation to grow to 2.1 per cent for 2013 and 2.9 per cent for 2014.
"We think it is acceptable and we are comfortable with those levels," he told a media briefing on the 2014 Economic Outlook here today.
The Singapore-based bank applauded the government's measures to contain the fiscal deficit at 3.5 per cent of gross domestic product by implementing a series of subsidy rationalisation programmes.
Liew said those initiatives encourage foreign direct investment (FDI) flow into the country, leading, in the longer term, to more wealth creation for the broader population and helping to stimulate domestic spending.
"However, considering the Goods and Services Tax will only be implemented in April 2015, should there be any reversal in policy as we move closer to the date, it will be very damaging for investment sentiment here," he said.
He noted that FDI would still be attracted to this region, driven by the Trans-Pacific Partnership Agreement as well as the surprising World Trade Organisation deal to reduce barriers to exports from the poorest countries
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