Nomura: Only one rate hike expected for 2018
PETALING JAYA: There will be only one rate hike, of 25 basis points, in January next year, according to Nomura Research’s Southeast Asia economist Brian Tan.
“The rate hike is to avert the build up of financial imbalances, but we don’t expect anymore rate hikes after that as we believe the elections will be called between March and May,” he said in a conference call titled “Asia in 2018: Stretching The Sweet Spot” today.
Tan said the recent strong gross domestic product (GDP) growth has likely opened a window for Bank Negara to normalise its accommodative monetary policy stance.
He added that it is unlikely to see any more rate hikes after January as the government will be forced to tighten its fiscal stance to meet the 2018 fiscal deficit target of 2.8% of GDP.
Tan foresees Malaysia continuing to register strong economic growth despite an expected moderation in GDP growth to 5.5% in 2018 from 5.8% in 2017, driven by both the domestic and external front as well as robust exports and rising oil prices.
Over in the Asian region, Nomura Research’s head of emerging markets economics Rob Subbaraman views that the Asian economy will generally remain in a sweet spot on the back of solid exports growth, strong capital inflows and low inflation, which justifies Asian central banks keeping policy rates at low levels.
He explained that the bond buying exercise by the European Central Bank and the Bank of Japan will more than offset the US Fed’s quantitative tightening, hence sustaining capital inflows into the region.
“The Asia market will also be supported by upswing in the technology segment and business capital expenditure.”
Rob noted that the fiscal and monetary policies in Asia remain accommodative and supportive of domestic demand.
Nomura Research sees India, Indonesia and the Philippines as Asia’s new rising stars in the next two to five years, dubbed Asia’s “tiger cubs”, replacing Northeast Asia’s ageing and debt burdened tigers as core of the region’s economic dynamism.
“All three have kept prudent monetary policy and implemented major tax reforms to increase fiscal space for infrastructure spending”, Rob said.
Nonetheless, he stressed that US trade protectionism remains one of the major downside risks to the Asian economy going forward.
Source: The Sun Daily