KUALA LUMPUR (March 7): Malaysia’s central bank on Thursday kept the benchmark interest rate unchanged, as widely expected, citing improving economic growth and moderating inflation.

The overnight policy rate was maintained at 3% following the Monetary Policy Committee’s two-day meeting, Bank Negara Malaysia said in a statement. A survey of 19 economists by Bloomberg unanimously called for the central bank to stand pat at the second of six reviews scheduled for this year.

“Moving forward, growth is expected to improve in 2024, driven by the recovery in exports and resilient domestic expenditure,” Bank Negara said. “Export growth is turning positive after contracting since March 2023 and will continue to be supported by stronger global trade.”

Malaysia’s economy, the third-largest in Southeast Asia, may expand 4%-5% this year, according to official forecast. Following weaker-than-expected 3.7% growth in 2023, the government is betting on resilient consumer spending and business investments amid better external demand to drive growth.

The policy rate has remained unchanged for 10 months and was last raised in May 2023 by 25 basis points, closing a cycle of what has been called “normalisation” by the central bank.

“The monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects,” Bank Negara said.

Apart from external demand, the central bank expects continued employment and wage growth to buoy household spending while investment activity would be supported by the ongoing multi-year projects in both the private and public sectors as well as various national master plans and higher realisation of investments.

Growth outlook, however, is subject to downside risks stemming from weaker-than-expected foreign demand and larger declines in commodity production, the central bank flagged.

On inflation, Bank Negara noted that inflation in 2024 is expected to remain “moderate” broadly reflecting stable demand conditions and contained cost pressures, an outlook highly dependent on domestic policy changes and global commodity prices and financial markets.

The central bank also reiterated that the ringgit remains undervalued given the economic fundamentals and growth prospects.