Consumer-price gains quickened to a 32-month high of 3.5 per cent in February, after the government raised fuel and power tariffs to rein in the fiscal deficit. Prime Minister Datuk Seri Najib Razak will introduce a consumption tax in 2015 and targets a 15.6 per cent reduction in subsidies to RM39.4 billion (US$12 billion) in 2014 for items such as sugar and cooking oil, according to a Finance Ministry report released in October.
"Inflation is rising fast due to administrative measures and the forthcoming goods and services tax," said Wee-Khoon Chong, Singapore-based head of rates strategy for Asia ex-Japan at Nomura Holdings Inc. "We expect Bank Negara Malaysia to hike twice this year to 3.50 per cent from three per cent."
One-year swaps held at 3.50 per cent as of 5:05pm in Kuala Lumpur, after rising two basis points to that level late yesterday, according to data compiled by Bloomberg. That's the highest since July 2011. The contracts advanced 11 basis points this year.
The yield on the 3.172 per cent government bonds maturing in July 2016 was steady at 3.34 per cent. The ringgit dropped 0.4 per cent, a second day of declines, to 3.2839 per dollar.
Bank Negara Malaysia has kept it benchmark interest rate at three per cent since May 2011 even as inflation accelerated. It next meets to review policy on May 8.
"Given the nature of factors behind the increase in inflation, monetary policy is not the best policy tool to manage the situation," the central bank said in its annual report in March. "Nevertheless, higher cost-push inflation could lead to inflation expectations becoming unanchored and could, in turn, lead to wage growth that is not consistent with productivity growth."
Southeast Asia's third-largest economy may grow 4.5 per cent to 5.5 per cent in 2014, after expanding 4.7 per cent last year, the central bank said in the March 19 report.
Three-year Malaysian sovereign debt offers a real yield of minus 0.12 per cent, after accounting for inflation, according to data compiled by Bloomberg.
"The real interest rate has been negative, and Bank Negara won't tolerate that for long," said Kumar Rachapudi, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd, who predicts the central bank will tighten policy by 50 basis points in the second half.
Bank of America Merrill Lynch has moved to receive two-year Malaysian swaps from the five-year tenor, and still wants to position for a less hawkish stance by Bank Negara than what's been priced in, Hong Kong-based strategist Albert Leung wrote in a research note yesterday.
One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, rose four basis points, or 0.04 percentage point, to 6.68 per cent
One-year swaps held at 3.50 per cent as of 5:05pm in Kuala Lumpur, after rising two basis points to that level late yesterday, according to data compiled by Bloomberg. That's the highest since July 2011. The contracts advanced 11 basis points this year.
The yield on the 3.172 per cent government bonds maturing in July 2016 was steady at 3.34 per cent. The ringgit dropped 0.4 per cent, a second day of declines, to 3.2839 per dollar.
Bank Negara Malaysia has kept it benchmark interest rate at three per cent since May 2011 even as inflation accelerated. It next meets to review policy on May 8.
"Given the nature of factors behind the increase in inflation, monetary policy is not the best policy tool to manage the situation," the central bank said in its annual report in March. "Nevertheless, higher cost-push inflation could lead to inflation expectations becoming unanchored and could, in turn, lead to wage growth that is not consistent with productivity growth."
Southeast Asia's third-largest economy may grow 4.5 per cent to 5.5 per cent in 2014, after expanding 4.7 per cent last year, the central bank said in the March 19 report.
Three-year Malaysian sovereign debt offers a real yield of minus 0.12 per cent, after accounting for inflation, according to data compiled by Bloomberg.
"The real interest rate has been negative, and Bank Negara won't tolerate that for long," said Kumar Rachapudi, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd, who predicts the central bank will tighten policy by 50 basis points in the second half.
Bank of America Merrill Lynch has moved to receive two-year Malaysian swaps from the five-year tenor, and still wants to position for a less hawkish stance by Bank Negara than what's been priced in, Hong Kong-based strategist Albert Leung wrote in a research note yesterday.
One-month implied volatility in the ringgit, a measure of expected moves in the exchange rate used to price options, rose four basis points, or 0.04 percentage point, to 6.68 per cent
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