INFLATIONARY pressure brought about by the overheated property sectors has forced Australia's and England's reserve banks to increase interest rates in their respective countries, but it would be a long time before Malaysian consumers will see any rate hike.
The likelihood of Malaysia or other countries in this region such as Thailand and Singapore following suit will be remote, at least for the time being, economists said.
On Tuesday, Reserve Bank of Australia and Bank of England raised interest rates by 0.25% in their respective countries, an early measure to curb spending.
The economists said Malaysia had yet to see any significant increase in spending like that seen in England and Australia that could force the government to increase interest rates to rein in inflation.
Given the excess liquidity in the economy and subdued inflation rate, we can afford to hold off any increase in interest rates, MIDF Consultancy Services Sdn Bhd general manager and economist Dr Yeah Kim Leng told StarBiz. He said Malaysia was also in a different economic and business cycle and would thus be insulated from similar rate increases.
Private consumption is still recovering from the low period in the first half of this year due to worries over the SARS outbreak and war in Iraq, so a similar increase will be unlikely, he said.
A Maybank Securities economist concurred with Yeah, adding that Malaysia's fixed exchange rate had also averted any pressure on the Malaysian government to hike interest rates in response to similar moves by other major economies.
Yeah said the Malaysian economy had yet to experience any spurt in spending activities, such as that in Australia or Britain which had led to a spike in property prices, prompting the respective governments to intervene with higher interest rates to avoid a property bubble.
The local economy is just recovering from the fall in consumption levels since early this year, he added.
In fact, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz has repeatedly emphasised on the government stance of an accommodative monetary policy, which puts less pressure on the use of interest rates measures to curb consumption or overheating of the economy.
While economists were confident that the local economy might be able to sustain a low interest rate regime, there were hints that domestic demand was slowly inching up, which might exert pressure on interest rates next year.
We have seen purchasing power increase due to rising equity prices, Yeah said, but added that such an increase had yet to be felt in the economy at large.