KUALA LUMPUR (May 9): Malaysia’s central bank on Thursday left the benchmark interest rate unchanged as widely expected, citing improving economic activity amid moderate inflation.
The overnight policy rate (OPR) was maintained at 3% following the Monetary Policy Committee’s two-day meeting, Bank Negara Malaysia (BNM) said in a statement. A survey of 24 economists by Bloomberg unanimously called for the central bank to stand pat at the third of six reviews scheduled for this year.
“The latest indicators point towards higher economic activity in the first quarter of 2024, driven by resilient domestic expenditure and a positive turnaround in exports,” BNM said.
Official flash estimates point to the economy expanding 3.9% in the first quarter from a year earlier. The government is expected to announce the full data on gross domestic product next week.
Malaysia’s economy may expand 4%-5% this year, according to government forecast, following a weaker-than-expected 3.7% growth in 2023. The government is betting on resilient consumer spending and business investments amid increased external demand to drive growth.
BNM has kept the policy rate unchanged for one year now since it was last raised in May 2023 by 25 basis points, bucking recent moves by its counterparts. In April 2024, Bank Indonesia unexpectedly raised its benchmark rate by 25 basis points to support the tumbling rupiah while Bangko Sentral ng Pilipinas raised its key rate by 25 basis points in an off-cycle meeting in Oct 2023 amid the surging US dollar.
“At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects,” BNM said.
Going forward, a recovery in exports is expected to pick up, supported by the global tech upcycle and continued strength in non-electrical and electronics goods, BNM noted. Tourist arrivals and spending are also set to rise further, it flagged.
Domestically, continued employment and wage growth remain supportive of household spending while investment activity would be supported by ongoing multi-year projects, implementation of various national master plans and higher realisation of approved investments, BNM said.
BNM said inflation has remained benign and is expected to remain “moderate, broadly reflecting stable demand conditions and contained cost pressures.”
March data show a milder-than-expected increase in the consumer price index to 1.8% year-on-year due to slower increases in the price of food and healthcare, and headline inflation is projected to average 2.0%-3.5% while core inflation will come in at 2.0%-3.0% for the year.
BNM also reiterated that the ringgit currently does not reflect Malaysia's economic fundamentals and growth prospects, adding that the central bank will “continue to manage risks arising from heightened financial market volatility.”
Recent coordinated efforts with the government-linked companies, government-linked investment companies and corporate engagements “have gained further traction, cushioning the pressure on the ringgit,” it said.