RAM revises Malaysia's 2017 GDP forecast upwards to 5.2 PCT

In a statement today, the rating agency said the revision was made after a better-than-expected growth performance of 5.6 per cent in the first quarter, as the economic recovery momentum was beginning to show signs of sustainability.

"Most of this upside stems from a positive turnaround in business sentiment, which has brought about more productive capacity building in the form of machinery and equipment investments," it said.

It added that a significant rebound in external demand had also supported the robust growth and, in part, was a key driver of higher business confidence exhibited by export-oriented firms, in line with RAM's Business Confidence Index findings.

Meanwhile, RAM Rating Services also increased its inflation expectation for this year to 3.8 per cent from 3.0 per cent originally, on the back of a stronger-than-expected oil price recovery momentum in the first quarter and upward stickiness of food prices, especially food away from home.

"Although the current upward price momentum is still primarily cost-push driven, the acceleration in growth momentum indicates a stronger potential for a higher prevalence of demand-pull inflation, moving forward," it said.

It added that there was a higher possibility of a 25 basis points hike in the overnight policy rate towards the end of the year.