(Bloomberg) -- Malaysia left its benchmark interest rate unchanged on Wednesday, giving itself room to act should price pressures flare up once the government cuts fuel subsidies later this year.

Bank Negara Malaysia kept the overnight policy rate at 3% for its first monetary policy meeting of the year, as predicted by all of the 21 economists in a Bloomberg survey. The central bank last adjusted borrowing costs in May, when it raised the benchmark by 25 basis points.

While Malaysia’s growth is expected to improve in 2024 and inflation to remain modest, risks remain, the central bank said in a statement. The government’s plan to review price controls and subsidies this year will affect the outlook for inflation and demand, it said.

Malaysia’s policymakers are extending their wait-and-see stance amid threats to the nation’s inflation and economic outlook. The government’s plans to strengthen its fiscal position through more targeted assistance and higher taxes risk stoking price pressures at a time when a still-fragile global economic recovery threatens to weigh on Malaysia’s already slower-than-expected growth.

 

In 2024, inflation is set to “remain modest, broadly reflecting stable cost and demand conditions,” the central bank said. Malaysia’s inflation outlook will be “highly subject” to changes in subsidies and price controls, as well as global commodity prices and financial markets, BNM said. 

Oversea-Chinese Banking Corp. expects policy makers to keep rates unchanged this year.

“The broader picture is manageable,” said Lavanya Venkateswaran, an economist at Oversea-Chinese Banking in Singapore. “The timing and mechanism of implementation of targeted fuel subsidies will be key to watch going forward.” 

The ringgit’s recent slide was mainly driven by external factors, and not reflective of the domestic economic performance and prospects, according to the central bank. The currency fell 0.1% to 4.734 against the dollar as of 4:04 p.m. in Kuala Lumpur.

BNM said it will continue to “ensure sufficient liquidity to support the orderly functioning of the domestic foreign exchange market,” given the threat of bigger price swings in global markets. Monetary policy is expected to remain tight globally on the near term, although the tightening cycle has peaked for most central banks, it said.

What Bloomberg Economics Says...

“We see little chance of an imminent cut due to upside risks to inflation. We expect BNM to leave its policy rate unchanged through 2024, barring a deep or protracted global recession.”

—Tamara Mast Henderson, Asean economist

For the full note, click here

Malaysia’s gross domestic product moderated last year, and came in slightly below the central bank’s forecast of about 4% growth, according to the government’s advance estimates released last week.

“The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and heightened volatility in global financial markets,” BNM said, citing external challenges. “The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth.”

The central bank also said it “will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.”

--With assistance from Joy Lee, Derek Wallbank, Marcus Wong and Kevin Varley.

(Updates with economists’ comments, ringgit’s level starting in sixth paragraph)

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