Malaysia kept its benchmark interest rate unchanged for a second straight meeting on Thursday as the central bank continues to assess the effects of last year’s tightening on inflation and growth.
(Bloomberg) — Malaysia kept its benchmark interest rate unchanged for a second straight meeting on Thursday as the central bank continues to assess the effects of last year’s tightening on inflation and growth.
Bank Negara Malaysia held its overnight policy rate at 2.75%, a decision seen by 11 of 20 economists in a Bloomberg survey, with the rest expecting a 25 basis-point increase.
At this level, the rate remains accommodative and supportive of economic growth, the central bank said in a statement Thursday. BNM “will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth.”
Malaysia was the first in the region to pause its monetary tightening this year as authorities want to see the impact of the cumulative 1-percentage-point rate increase in 2022 to domestic demand and to prices. Headline and core inflation cooled for a second straight month in January, while gross domestic product fell 2.6% in the October-December period from the prior quarter even as year-on-year growth was better than expected.
BNM last month said its decisions are independent of other central banks’ monetary policy stance, amid the Federal Reserve’s aggressive fight against inflation.
For now, BNM said, the rate panel remains vigilant to cost factors, including those arising from financial market developments, that could affect the inflation outlook.
“Headline and core inflation are expected to moderate over the course of 2023, but will continue to be elevated amid lingering demand and cost factors,” the central bank said.
Still, the Southeast Asian nation may have to resume its tightening cycle sooner rather than later amid renewed pledges from Prime Minister Anwar Ibrahim to cut down on subsidy spending. Analysts expect another 25 basis points of rate hike next quarter before the central bank goes into a long pause.
Malaysia’s growth trajectory indicates the country still has scope to tighten. Officials have repeatedly ruled out a recession, counting on domestic demand to anchor its moderating growth through the global slowdown. Anwar, who doubles as finance minister, said he was confident GDP growth this year would exceed the government’s 4.5% forecast.
The government expects inflation to average from 2.8%-3.8% this year, with Anwar warning last month that price pressures could rise if uncertainty surrounding the global supply chain remains unresolved.
–With assistance from Tomoko Sato, Liau Y-Sing, Joy Lee and Cecilia Yap.
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