Rapid growth raises fears<\/p>\n
KUALA LUMPUR (AFP): Malaysia's economic policies will allow
\n1996 growth to exceed the central bank's 8.3 percent target,
\ntriggering possible concerns about stability, a foreign research
\nfirm said yesterday.<\/p>\n
With excessive growth, the current account deficit would
\nremain high at 8.1 percent of gross national product and
\nunderlying inflationary pressures were likely to escalate, Crosby
\nSecurities said in a report.<\/p>\n
Its quarterly regional economic review forecast Malaysian
\ngross domestic product (GDP) growth of 8.6 percent for 1996, down
\nfrom 9.5 percent in 1995 and 9.2 percent in 1994.<\/p>\n
\"Consequently we expect stability concerns to resurface over
\nthe course of the year,\" the report said.<\/p>\n
Economic growth in Malaysia has averaged more than eight
\npercent since 1987.<\/p>\n
\"Despite GDP growth slowing in the first quarter to 8.3
\npercent, we believe that the growth momentum remains strong,\" the
\nreport said.<\/p>\n
There was no evidence that Malaysia's tight monetary policy
\nhad been effective, Crosby Securities said.<\/p>\n
Demand pressures remained high judging from high car and
\nmanufacturing sales, it said.<\/p>\n
Given high consumption growth, inflation was expected to rise
\nto around four percent by the end of the year after hitting 3.6
\npercent in May.<\/p>\n
The high influx of short-term capital to cash in on rising
\ndomestic interest rates and speculate on the ringgit's rise
\nfollowing more restrictive measures by Thailand and Indonesia had
\nadded to Malaysia's problems in curbing inflation, the report
\nsaid.<\/p>\n
The ringgit strengthened to a nine-month high of 2.48 to the
\ndollar in May and is currently hovering at 2.49.<\/p>\n
\"This is likely to limit the use of interest rates as a policy
\ntool,\" Crosby said, forecasting local rates would rise only
\nanother 50 basis points over the course of the year.<\/p>\n
Local three-month interbank rates have risen to 7.36 percent
\nfrom 6.1 percent at the end of last October, pushing up lending
\nrates to 8.8 percent in June from 7.2 percent at the end of
\nSeptember.<\/p>\n
The government has said there will be no major economic policy
\nchanges, but the central bank was likely to resort to
\nadministrative measures to rein in inflation and cool consumption
\ngrowth for long-term stability, the report said.<\/p>\n
Crosby did not rule out the central bank resorting to a third
\nincrease in the statutory reserve requirements of banks to at
\nleast 14.5 percent from the current 13.5 percent.<\/p>\n
There could be greater pressure on banks to slow loan growth
\nand curb auto and property credit.<\/p>\n
\"It could also come up with new action against short-term
\ncapital inflows if the external sector continues to be
\nexpansionary,\" Crosby said.<\/p>",
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