Muristek
People are seen wearing protective masks as they walk along the Bukit Bintang shopping area in Kuala Lumpur February 13, 2022. — Picture by Firdaus Latif
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KUALA LUMPUR, March 31 ― CGS-CIMB is maintaining its 2022 growth forecast for Malaysia’s gross domestic product (GDP) at 5.6 per cent year-on-year (y-o-y).
“Our forecast is intact despite Bank Negara Malaysia’s (BNM) latest downward revision of its 2022 GDP growth forecast to between 5.3 per cent and 6.3 per cent from 5.5-6.5 per cent previously,” it said in a research note today.
It also expects private consumption to remain robust, noting that BNM appears to be more optimistic about Malaysia's domestic growth trajectory, projecting private consumption growth at nine per cent, leading to domestic demand growth of 7.2 per cent y-o-y.
The research house also cautioned the market to watch out for second-round effects on inflation, noting that BNM had not touched on key signposts for the upcoming monetary policy normalisation as it did in its previous annual report.
“To recap, the signal given the last time was for sustained private consumption without excessive fiscal support, improvement in the labour market, narrowing of the output gap, and healthy access to financing.
“(This time,) the central bank had focused more on inflationary issues, citing the factors for the recent increase in the prices of goods and services, hinting that it could react if inflationary pressures become more entrenched,” it said.
During its engagement with analysts, BNM implied that it looks at a broader set of indicators before deciding on a rate increase beyond the stated signposts.
“On inflation, BNM wants to see its pervasiveness, indicating that it wants evidence of inflation leading to wage pressures and subsequently a second-round effect stemming from the demand side.
“Henceforth, indicators such as wage growth, inflation expectations and persistent increase in core inflation should be monitored closely,” said CGS-CIMB.
Nevertheless, BNM said any monetary policy changes will be gradual, given the significant downside risks.
“Overall, we still maintain our expectation of two 25 basis point rate hikes in the second half of this year,” added CGS-CIMB. ― Bernama