Malaysia left its benchmark interest rate unchanged on Thursday, maintaining support for the economy amid slowing exports and shrinking factory output.
(Bloomberg) — Malaysia left its benchmark interest rate unchanged on Thursday, maintaining support for the economy amid slowing exports and shrinking factory output.
Bank Negara Malaysia kept the overnight policy rate at 3% at its first monetary policy meeting on Thursday with Governor Shaik Abdul Rasheed Abdul Ghaffour at the helm. The decision was seen by all but one of the 18 analysts in a Bloomberg survey.
“The monetary policy stance is slightly accommodative and remains supportive of the economy,” the BNM said in a statement. While weighed down by exports, growth will remain resilient this year while inflation will trend lower in the second half, it said.
The ringgit slid 0.1% against the dollar after the central bank’s decision, while the main stock index held losses, with the KLCI Index down 0.4% at 4:07 p.m. local time. The local currency is Southeast Asia’s biggest loser this year while the equities gauge is among the worst performers globally.
The pause gives policymakers time to assess the impact of the global slowdown on the trade-reliant economy. Weakening external demand is already weighing on manufacturing, with Malaysia’s industrial output shrinking for the first time in nearly two years in April. Exports contracted for a third straight month in May.
Global growth remains weighed down by persistent core inflation and higher interest rates, the central bank said, while noting that China’s pace of recovery has slowed in recent months. The BNM said the policy stance by most central banks will likely remain tight.
At least three analysts expect Malaysia’s central bank to keep borrowing costs steady for a while.
Domestic growth and inflation have decelerated meaningfully, reducing the need for the BNM to hike rate further, said Winson Phoon, head of fixed-income research at Maybank Securities Pte in Singapore. The BNM has also toned down the language around financial imbalances, Phoon said.
“The BNM statement dropped the previous description of the domestic growth outlook as “relatively balanced” and appeared to be rather concerned about weaker global growth and demand,” said Alvin T. Tan, head of emerging-market currency strategy at RBC Capital Markets in Singapore. “I think the statement definitely solidifies the expectation of a longer policy pause.”
What Bloomberg Economics Says…
“We think its outlook for growth and inflation looks conducive for leaving policy unchanged for the rest of the year”
—Tamara Mast Henderson, Asean economist
For the full note, click here
Gross domestic product growth, which showed signs of moderation in the first quarter, will be driven by resilient domestic demand, helped by improving tourism and investment flows, the BNM said. The government expects GDP to expand at a range of 4% to 5% while the central bank previously forecast inflation to average within 2.8% to 3.8% this year.
“I think BNM will likely keep rates at 3% if things continue the way they are, but the trend among Asian central banks – BNM included – has been to leave the option of hiking interest rates further on the table as a measure of prudence, rather than one of certainty,” said Galvin Chia, an FX strategist at Natwest Markets.
–With assistance from Tomoko Sato, Marcus Wong, Nurin Sofia and Cecilia Yap.
(Updates with market reax in the fourth paragraph.)
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