In a statement today, the rating agency said the revision was made after a better-than-expected growth performance of 5.6% 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% from 3.0% originally, on the back of 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.