BENGALURU- Bank Negara Malaysia (BNM) will leave its key interest rate at 3.00 percent and keep it unchanged at least until 2026, despite a weakening currency and a steady inflation outlook, a Reuters poll of economists found.
Malaysia’s consumer price index (CPI) rose 1.8 percent from a year earlier in March, matching the pace in the previous month, but was below BNM’s estimate of 2.0 percent -3.5 percent for the year, in part because BNM increased rates by a cumulative 125 basis points between May 2022 and May 2023.
Despite the central bank raising rates to pre-pandemic levels, the Malaysian Ringgit is down over 3 percent against the dollar for the year, as financial markets expect the US Federal Reserve to deliver its first rate cut in September.
With the Fed expected to keep rates higher for longer, BNM is also likely to follow suit.
All 30 economists in the April 30 – May 6 Reuters poll predicted Malaysia’s central bank would leave its overnight policy rate (OPR) at 3.00 percent on May 9.
“BNM is likely to assess its policy stance as remaining supportive of the economy… The Malaysian ringgit’s volatility will continue to garner BNM’s attention during its May decision,” wrote Han Teng Chua, an economist at DBS Bank.
“There is also limited room for easier BNM monetary policy, given Malaysia’s negative interest rate differentials with the US and a still-firm US dollar due to the uncertainty regarding the timing and extent of potential interest rate cuts over the coming months.”
Malaysia’s GDP was expected to grow 4.3 percent this year and 4.6 percent in 2025 and inflation was forecast to average 2.6 percent this year and 2.5 percent next, a separate Reuters poll showed.
While BNM is not forecast to hike again, economists do not expect the central bank to cut soon. Among economists who had a long-term view, 23 of 25 expected no change before end-2024.
“Looking at the current situation in Malaysia where it’s one of the countries not facing an inflation problem, it sets a good scene for BNM to start easing policy. The main reason we think that’s not going to happen is because of its concern surrounding the currency,” said Sheana Yue, an economist at Oxford Economics.
“This year, domestic demand has been weak and everything is being driven by what’s happening in the currency. We think next year pressure on the currency will ease more but domestic activity will be stronger. Hence, BNM might keep rates on hold next year even if the Fed cuts rates to prevent the economy from overheating.”
