(Bloomberg) — Malaysia kept its benchmark interest rate unchanged on Thursday, saving its policy ammunition for later amid looming risks to inflation and ongoing measures to defend the ringgit.
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Bank Negara Malaysia left the overnight policy rate at the post-pandemic high of 3%, as expected by all 24 economists in a Bloomberg survey. The central bank last adjusted borrowing costs a year ago, when it raised the benchmark by 25 basis points.
A strengthening economy, low inflation and a currency that’s outperformed most peers in Southeast Asia this year support BNM’s decision to stand pat, even after Indonesia’s surprising rate hike last month. The recovery in exports is expected to gather momentum, supported by the global technology upcycle and increasing tourist arrivals and spending, BNM said.
“The monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects,” BNM said in a statement.
The central bank said it will continue to manage risks arising from heightened financial market volatility as it braces for the growing likelihood that interest rates in the US will remain elevated for longer. The central bank is looking beyond monetary policy to support the currency. Policymakers have taken coordinated measures to shore up the ringgit, helping it to stabilize from a 26-year-low reached in February.
“There is no catalyst for BNM to alter the monetary policy stance at this juncture given stable domestic economic growth and benign inflation,” said Winson Phoon, head of fixed-income research at Maybank Securities Pte in Singapore. “Malaysia possesses non-monetary policy levers to provide support to the ringgit.”
The central bank reiterated that the local currency doesn’t reflect Malaysia’s economic fundamentals and growth prospects, even as it warns of downside risks to the outlook, including the threat of further escalation of geopolitical tensions and unexpected price pressures.
“Over the medium term, domestic structural reforms will provide more enduring support to the ringgit,” BNM said.
The currency was little changed at 4.7397 versus the dollar as of 3.45 p.m. in Kuala Lumpur.
Gross domestic product is forecast to expand between 4% to 5% in 2024. Inflation has hovered below 2% for the past seven months and is expected to remain moderate — though the outlook is highly dependent on changes to price controls as well as global commodity prices and financial market developments, according to the central bank.
Malaysia plans to phase out blanket fuel subsidies and replace it with targeted assistance this year, potentially stoking price pressures. But details are scarce, making it tricky to predict its precise impact. That’s reflected in the central bank’s wide inflation forecast range of between 2% and 3.5% for 2024.
Policymakers remain “vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth,” the central bank said.
–With assistance from Tomoko Sato, Joy Lee, Ram Anand, Kevin Varley and Marcus Wong.
(Adds comments by analyst and central bank starting in sixth paragraph.)
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