(Bloomberg) -- Malaysia left its benchmark interest rate unchanged on Thursday, while remaining upbeat about the country’s growth prospects, inflation trajectory and currency outlook.
Bank Negara Malaysia kept the overnight policy rate at 3%, as predicted by all 22 economists in a Bloomberg News survey.
The monetary policy stance — last adjusted in May 2023 — “remains supportive of the economy” and is consistent with the current assessment on Malaysia’s outlook, the central bank said in a statement.
BNM has more reason to stay cautious about prematurely easing monetary policy compared with its peers, even as the Federal Reserve signals an impending rate cut. Price pressures risk flaring up if Prime Minister Anwar Ibrahim proceeds with his pledge to end blanket subsidies for the country’s most widely-used gasoline, a move that is key to bolstering government finances.
Exports are expected to benefit from the global tech upcycle while tourism spending will continue to increase, according to BNM, as employment and wage growth support household spending. Still, the growth outlook remains subject to downside risks from lower-than-expected external demand and commodity production, it said. The Southeast Asian economy outperformed in the first half of the year and may exceed the government’s 4% to 5% full-year forecast.
Inflation has remained muted, with the impact of higher diesel prices from fuel subsidy cuts staying contained through mitigation and enforcement measures, according to the central bank. Price pressures are unlikely to exceed 3% for the year as a whole, though that outlook will largely hinge on further domestic policy measures, said BNM.
Read: Malaysia Bonds Will Be at Risk If Fuel Subsidy Stays
The central bank said it will remain vigilant to ongoing developments as it assesses the domestic inflation and growth path going into 2025. Elsewhere in the region, the Philippines reduced borrowing costs from a 17-year high last month while Indonesia and Thailand have signaled openness to loosen monetary settings.
What Bloomberg Economics Says...
“With policy at what appears to be at the neutral level — supporting growth without adding to price pressures — we still expect BNM to leave rates unchanged through year-end.”
— Tamara Mast Henderson, economist
Click here to read the full report
The ringgit held its gains following the central bank’s widely expected decision. BNM said the currency will continue to receive enduring support through Malaysia’s positive economic prospects and domestic structural reforms. This would be complemented by ongoing initiatives to encourage flows, it added.
The currency has stabilized from a 26-year low against the dollar reached in February, emerging as the top gainer among developing markets this year. The recent recovery is driven by the shift in expectations of lower interest rates in major economies, as well as Malaysia’s strong economic performance, said BNM.
Going forward, the central bank is unlikely to adopt a hawkish stance to further defend the ringgit, despite upside surprises to Malaysia’s growth, according to Winson Phoon, head of fixed-income research at Maybank Securities Pte.
“The monetary policy stance remains neutral, and we expect no change in the overnight policy rate for the rest of the year and into 2025,” he said.
--With assistance from Joy Lee, Cecilia Yap, Marcus Wong and Shinjini Datta.
(Updates with details throughout.)
©2024 Bloomberg L.P.
