Amanah Capital Group says the current low inflation rates and subdued expectations on inflation may, at the minimum, keep local interest rates at current levels until the first half of 2005.
The financial services group expects the price index to stay around 1.2% this year.
In its commentary of the money market for August, Amanah Capital said maintaining interest rates at low levels for a considerable period of time would help boost recovery while preventing the current trend of disinflation from transforming into deflation.
Amanah Capital said authorities recently reiterated their stance on the level of interest rates , an indication that no action on interest rates would take place until the end of the year.
“Since a monetary boost works with a lag time of six to nine months, it is important to let effects of the latest 50 basis point reduction in the 3-month intervention rate filter through the economy before considering any another rate move,” the company said.
It said the Malaysian economy might have hit bottom during the second quarter and at the same time, the bottom of the interest rate cycle.
According to its commentary on the money market, Amanah Capital said the country's foreign exchange reserves could well exceed US$40bil by year-end following renewed interest in the equity market and the strengthening of inflows such as foreign direct investments.
It said not only Malaysia’s international liquidity breached the US$38bil mark much sooner than expected, the latest US$1bil gain from a fortnight ago was also the biggest increase in foreign reserves in dollar terms since mid-March 2002.
The 2.63% rise from two weeks ago was the fastest since the increase at the end of June 2002, it added.
According to Amanah Capital, Malaysia’s reserve position, currently sufficient to cover 5.9 months of retained imports and equivalent to 4.2 times the short-term external debt, would certainly be reinforced during the remainder of 2003. – Bernama
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