KUALA LUMPUR: A rise in consumer price index (CPI) may impel Bank Negara to resume increasing interest rates, by 25 basis points each in the second and third quarter of 2011, respectively.

The central bank, however, is expected to keep its monetary policy on hold in the first quarter of 2011 until there was more clarity on the global picture and given its moderate inflation projection through 2011.

We are more concerned about CPI inflation, expecting it to rise to 3.3% in 2011. This should impel Bank Negara to resume raising rates, with 25 basis point hikes each in quarter two and three of 2011, Nomura Securities International Inc said in its 2011 Global Economic Outlook released here yesterday.

Monetary conditions tightened in 2010 via real effective exchange rate appreciation and three 25 basis points rate hikes bringing the overnight policy rate to 2.75%.

Monetary conditions should also tighten through further ringgit appreciation, given the large current account surplus and potential for larger capital inflows, said Nomura.

We do not expect Malaysia to impose controls on inflows in the near future, it added.

Bank Negara recently further liberalised the capital account and set a 70% loan-to-valuation ratio cap on third mortgages in a bid to curb property market speculation.

- Bernama