(Bloomberg) -- Malaysia is poised to maintain its benchmark interest rate unchanged on Thursday amid increasing optimism over its growth and inflation outlook, while the ringgit leads gains in the region.
Bank Negara Malaysia will continue to keep the overnight policy rate at 3%, according to all 21 economists in a Bloomberg News survey. The central bank last adjusted borrowing costs in May 2023, capping a yearlong tightening cycle that saw it raising rates by a total 125 basis points.
All signs point to the central bank standing pat at this week’s meeting, and probably beyond, with analysts polled by Bloomberg expecting Malaysia to pause well into 2025. Malaysia’s policy meeting comes two weeks before the Federal Reserve is widely expected to start its rate-cut cycle.
The Southeast Asian economy outperformed in the first half and may exceed the government’s 4% to 5% full-year forecast. Inflation has remained within expectations after a hike in diesel prices had muted impact. “The current monetary policy stance is deemed conducive to boosting economic growth,” analysts at Kenanga Investment Bank Bhd. said in a research note Monday.
Here’s what to watch out for in the statement at 3 p.m. in Kuala Lumpur:
Growth outlook
Analysts upgraded their gross domestic product growth projection this year to 5% after GDP expansion beat estimates for two straight quarters.
Growth may hit “around 5% or even higher” in 2024, BNM Governor Abdul Rasheed Ghaffour said at an Aug. 16 briefing on the economy, adding that the official forecast is intact even if risks materialize. Any revision to the official projection would be made during Prime Minister Anwar Ibrahim’s presentation of 2025 budget on Oct. 18.
Read: Malaysia Growth Seen Beating Official Estimate on Recovery Boost
Risks to growth include the lagged impact of the El Nino weather on palm oil output, scheduled maintenance activities in the oil and gas sector this quarter that may hit production, and external shocks, Abdul Rasheed said.
Inflation Path
Chances of inflation misbehaving this year have waned as Anwar signals he’s not in a hurry to remove blanket subsidies on RON95, the country’s most widely-used gasoline.
Strong growth this year may help the government meet its fiscal target without having to resort to a politically sensitive move so soon after it raised diesel prices. Consumer prices are unlikely to exceed 3% on the average this year, barring shocks, the governor said.
Read: Malaysia Mulls Return of Consumption Tax to Bolster Finances
Still, the central bank must stand prepared to increase the key rate should the RON95 subsidy cuts materialize, according to the OECD in a report last week. The impact of ending subsidies for the popular fuel is uncertain as the government has yet to unveil the mechanics behind the move, it said.
Ringgit Performance
BNM may reaffirm its commitment to manage risks to the currency, even as the ringgit has been the top gainer in Asia against the dollar this year. Coordinated central bank and government measures have shored up the currency after it dipped to a 26-year low in February, helped by robust investor interest on Malaysia’s growth potential.
Last month, BNM expanded the eligibility for a program started in April that made it easier for qualified Malaysian companies to repatriate and convert foreign currency from overseas investment. The measure saw more than $1 billion in additional inflows, the central bank said.
“Having been one of the worst-performing currencies in Asia last year, the ringgit has been appreciating in recent months. BNM will likely want to sustain that trend by keeping interest rates steady,” Moody’s wrote in a note Friday.
--With assistance from Shinjini Datta.
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