Niaz Asadullah, an associate fellow of Universiti Malaya’s Social Wellbeing Research Centre, said the central bank has shown restraint to safeguard the interest of the business community.
“This will keep the cost of borrowing low and stimulate consumer spending. Low interest rates typically translate into lower mortgage rates. Similarly, cheaper access to credit is good for businesses,” he said.
He said the availability of alternative policy tools such as encouraging government-linked entities to repatriate their foreign investment income to strengthen the ringgit has also helped preserve the monetary policy space.
“At the same time, the government is being optimistic about the future of the economy and views interest rate adjustment as a measure of last resort in the current circumstances,” said Niaz, who is also the Global Labor Organization’s Southeast Asia lead.
He expects to see a stable interest rate for now. “However, much depends on how the government manages future inflationary pressure as well as the struggling ringgit. For now, the perceived risk of inflation is modest.”
Nevertheless, he anticipates BNM may adjust the OPR upward later in the year when implementing fuel subsidy cuts, particularly if staggered reductions are not possible.
“Cutting petrol and energy subsidies would increase production costs, adding to inflationary pressure. And rising inflation would call for an increase in OPR,” he added.
In a widely anticipated move, BNM left the benchmark interest rate unchanged at 3%, citing improving economic activity amid moderate inflation.
The central bank has kept the OPR unchanged for exactly a year now, having last raised it in May 2023 by 25 basis points (bps), bucking a recent trend by its regional counterparts.
Indonesia’s central bank raised its benchmark interest rate by 25bps to 6.25% last month to shore up the weak rupiah while Bangko Sentral ng Pilipinas raised its key rate by 25bps in an off-cycle meeting last October.
Meanwhile, HSBC Global Research said there are few reasons for BNM to move the OPR in either direction. As the US Federal Reserve (the Fed) pushed its rate cuts to later this year, HSBC observed that this has also pushed back many other central banks’ plans to start easing.
“On top of the Fed’s monetary trajectory, economic conditions in Malaysia also do not warrant an imminent rate cut. Both growth and inflation point to the need for a prolonged hold,” it said.
HSBC said there is no reason to hike the rates, arguing a rate hike is “not a panacea to support the currency”, particularly given the broad US dollar strength.