Malaysia to increase fiscal spending by 8%

Fiscal deficit would then be above 5% of GDP, said OCBC.

OCBC said that a better-than-expected exports growth performance at the start of the year has provided the underlying support to the economy, even if GDP growth moderated to 4.7% yoy in Q1. Recent rhetoric from the government indicated that the authorities are planning for an additional fiscal spending to the tune of 8% of the original target for the year, which would easily mean that its fiscal deficit would come in above 5% of GDP this year, higher than the 4.7% target.

Here's more from OCBC:

Once again, this would put Malaysia as the economy with the highest fiscal deficit in the region for 2012, and could potentially limit the room for further fiscal policy stimulus should the need arise. On this front then, given that we now estimate inflation to average around 2.5% yoy for 2012, we think that the BNM has a room to deliver a 25bps rate cut should the need arise.

We think it is highly unlikely that the pace of growth in the domestic economy will sustain at the current level, and as such, we expect the central bank to maintain its interest rate steady at 3% until the year-end, with the possibility of a 25bps rate cut not to be ruled out.