PETALING JAYA – Bank Negara Malaysia (BNM) will hold its key policy rate at 3% on Thursday, adopting the same no-change stance as most of its Asian peers amid signs of moderating economic growth and cooling inflation, a Reuters poll of economists showed.
Inflation in Malaysia dropped to a two-year low of 2% in July and the central bank, which does not particularly target inflation in setting monetary policy, said it would cool further.
That suggests BNM, having raised rates by a modest 125 basis points in the current cycle, has concluded its tightening but will keep rates higher for longer as the weak ringgit, down over 5% this year, may prevent inflation from falling quickly.
All 27 economists surveyed in the Reuters poll conducted from Aug 29 to Sept 4 unanimously predicted that the central bank would maintain its benchmark overnight policy rate (OPR) at the current level of 3% during its Sept 7 meeting.
Median forecasts also indicated that this rate would remain unchanged through 2024.
“BNM has limited reasons to change its policy stance for its upcoming meeting … inflationary pressures are easing, keeping the hawkish bias in check. BNM’s focus will remain on financial stability and external risks,” said Lavanya Venkateswaran, senior Asean economist at OCBC Bank.
“BNM’s ‘slightly accommodative’ policy stance remains supportive of slowing growth hence there is no imminent need to ease policy. Moreover, BNM’s rate hiking cycle was less aggressive than regional peers implying that the room to par back rate hikes is lower.”
A strong majority, 24 of 25, forecast the central bank to hold rates at 3% until the end of this year. Only one expected a 25 basis-point hike to 3.25% in November.
Some economists cautioned inflation could rise again once pandemic-era subsidies were lifted, suggesting the fight against price rises is not yet over.
However, slowing domestic economic growth, coupled with a sluggish global economy and a weaker China – Malaysia’s largest trade partner – would compel the central bank to remain on hold for an extended period.
Among those who had a view on rates until the end of 2024, over 80% of economists, 15 of 18, forecast the central bank would hold rates. Of the remaining three, one said rates would peak at 3.25%, while two expected them to fall to 2.75%.
That was despite its regional peers, who have also completed their monetary policy tightening cycles, being forecast to start easing in the first half of next year.
“Leading indicators still point towards subdued third quarter growth … the monetary policy committee (MPC) will likely keep policy slightly accommodative with the rate maintained at 3%.
“Our base case remains for an extended pause through 2024,” said Kit Wei Zheng, director and head of Asean Economics at Citigroup.
“The MPC may choose to wait until there is greater clarity over the timing and magnitude of subsidy reform before deciding whether or not to hike.”