By Adeline Paul Raj
extracted: business times
A 50-BASIS-point hike in Malaysia’s key interest rate can be expected this year as inflation rises in the second half, says Citibank Bhd.
“Currently, inflation is not an issue. However, it could rise in the second half to Bank Negara Malaysia’s implicit tolerance threshold of 3 per cent by 2012 as growth picks up and subsidies are gradually rolled back,” said Steven Yong, its head of investment strategies and research in the wealth management division.
Yong thinks the rate hike will start in July with 25 basis points, followed by another in November.
Bank Negara raised the interest rate three times last year, by 75 basis points in total, to 2.75 per cent.
Countries elsewhere in Asia too are expected to increase interest rates to combat rising inflation.
“The way inflation is unfolding in Asia, it’s coming in faster than expected,” Yong remarked.
China, which is looking at an inflation rate of around 5 per cent, may raise its rate by 1 per cent over the course of this year, he said.
There is a general fear that monetary policy tightening in China this year will cause equity markets to fall, but this may not necessarily be so, going by the trend between 2006 and 2008 when markets continued to move up, he said.
“It’s not cast in stone that a rate hike in China will lead to a fall in Asian equity markets,” he added.
Citibank likes the idea of investing in hedge funds as these are one of the best asset classes to take advantage of the continued volatility in the stock market this year. It also likes the emerging market consumer theme.
Commodity prices are expected to continue moving up this year, and Yong believes one of the ways to ride on this is to invest in countries like Brazil and Russia, which will benefit from the higher prices.
He said gold prices could average US$1,503.60 (RM4,601.01) an ounce this year, and US$1,438.20 (RM4,400.89) next year.
Crude oil, specifically West Texas Intermediate, could average US$90.80 (RM277.85) a barrel this year. It could potentially touch US$100 (RM306) a barrel but is unlikely to go any higher, he said.
On the bank’s ringgit-US dollar forecast, Yong said there was potential for the ringgit to strengthen to below RM3.00 this year for a short period.
Read more: Citibank expects rate increase in second half http://www.btimes.com.my/Current_News/BTIMES/articles/citir/Article/index_html#ixzz1B4MFxi46