07/07/2011 (Business Times) - There is a clear indication that Bank Negara Malaysia will increase its key interest rate by 25 basis points in the central bank's monetary policy meeting tomorrow, says HSBC Global Research.

It said a recovery in the external sector throughout the second half of 2011 aided by normalisation of supply chains in the region will be the key reasons for the improved rates, the research house said in a statement today.

"Moreover, strength in exports of commodities such as palm oil has, and will continue, to have a helpful buffering role against any slowdown in the electronic sector.

"Likewise, inflation still continues to have noticeable upside risk, partly due to the increase in electricity tariffs, but more importantly due to the robust growth momentum and hence underlying demand-led pressure. 

"Apart from cynical price concerns, there is also high level of household indebtedness," HSBC Global Research said, adding that this made it hard to imagine a prudent central bank like Bank Negara permitting the existence of negative real rates for too long.

Overall, the research house remained confident about Malaysia achieving a comfortable growth rate of 5.7 per cent this year. -- Bernama