Malaysia Keeps Policy Rate Unchanged as Growth Steadies

14-Sep-2019 Intellasia | Bloomberg | 6:02 AM Print This Post

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Malaysia’s central bank kept its benchmark interest rate unchanged for a second straight meeting as the economy posts steady growth despite mounting global risks.

The central bank held its overnight rate at 3 percent Thursday, saying current policy is accommodative and supports the economy. Sixteen of 24 economists surveyed by Bloomberg correctly predicted the decision, while the rest had forecast a 25 basis-point cut.

“Domestic drivers of growth, alongside stable labour market and wage growth, are expected to remain supportive of economic activity,” Bank Negara Malaysia said in a statement. “On the external front, Malaysia’s diversified exports will partly mitigate the impact of softening global demand.”

The bank kept its growth projection for this year unchanged at 4.3 percent-4.8 percent, but said it was “subject to further downside risks from worsening trade tensions” and other global uncertainties.

Early Mover

Malaysia’s central bank was one of the first in Asia to cut interest rates this year with a 25 basis-point cut in May. While its peers have since moved ahead with bigger-than-expected cuts, Malaysia has stayed on hold with its economy growing above expectations and inflation low and stable.

“May’s preemptive, pro-cyclical ‘get ahead of the curve’ cut that was received positively by the market appears to have paid dividends, offering more scope for the BNM to hold off for now,” said Stephen Innes, an Asia-Pacific market strategist at AxiTrader Ltd in Bangkok. “BNM are content to keep their powder dry for a rainier day.”

He also suggested the decision may have been influenced by Malaysia’s recent inclusion on a US Treasury watch list of potential currency manipulators.

Given the economy’s recent performance, “central bank governor Nor Shamsiah Mohd Yunus at this juncture might also be less inclined to drop interest rates to avoid the perception of embarking on competitive devaluation,” Innes said.

Low Inflation

The central bank said headline inflation is expected to inch up into next year but remain generally low, given the subdued outlook for oil prices and policy measures to keep food prices in check.

External risks such as the US-China trade war have remained a factor for Malaysia. The country may be benefiting from businesses relocating operations from China to Southeast Asia amid the trade war, but the greater risk of global recession could weigh on investor sentiment.

As one of the few net energy exporters in the region, Malaysia’s economy is also sensitive to geopolitical tensions that affect commodity output and prices.

Alex Holmes, an Asia economist with Capital Economics, said the Malaysian central bank is likely to resume easing as soon as its next meeting.

“With growth set to slow and inflation likely to be subdued, further easing looks likely,” Holmes wrote in a research note. “We are sticking with our forecast that interest rates will be cut by a further 25 bps later this year, most likely at the BNM’s next meeting in early November.”

https://finance.yahoo.com/news/malaysia-keeps-key-interest-rate-070000621.html

 


Category: Malaysia

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