Malaysia Central Bank Seen Holding Key Rate on Easing Inflation

Malaysia's central bank will likely keep its benchmark rate unchanged on Thursday (07/09), a Reuters poll showed, as inflation is expected to continue to trend downwards and economic growth remains solid. (Reuters Photo/Bazuki Muhammad)

By : Joseph Sipalan | on 11:00 PM July 12, 2017
Category : International, SE Asia

Kuala Lumpur. Malaysia's central bank is widely expected to leave its benchmark rate unchanged on Thursday (13/07), as growth remains steady and inflation has trended down after hitting an eight-year high in March.

Southeast Asia's third-largest economy looks to be recovering from a tepid 2016, with robust trade. Exports in May rose 32.5 percent from a year earlier, well above forecasts.

All 12 economists polled by Reuters expect Bank Negara Malaysia to hold its overnight policy rate at 3 percent on Thursday.

After the headline inflation rate reached 5.1 percent in March, on low base effects and higher retail fuel prices, it eased to 3.9 percent in May.

"Inflation has likely already peaked and should descend towards 3 percent by the end of the year," HSBC said in a July 10 note.

When inflation topped 5 percent, some economists forecast there would be one or two rate hikes before the end of the year.

But the easing of inflation, plus other economic developments, has meant many expect BNM can keep its benchmark. Still, eyes are on the Federal Reserve, and when it will next raise US rates.

In its last monetary policy meeting in May, BNM maintained an "accommodative" stance on expectations that growth will remain strong for the rest of the year on domestic demand, supported by wage and employment gains.

"An on-hold decision makes sense at this point because the growth-inflation mix is as Goldilocks as it gets for BNM," Euben Paracuelles said, an economist with Nomura.

A strong economy is key for Prime Minister Najib Razak, who risks losing support over rising living costs ahead of national polls that must be called by mid-2018.

In July 2016, BNM surprised markets by making its first interest rate cut in seven years. The central bank was expected to slash the rate further but held off on a weakening currency and rising prices.

The ringgit  among the weakest emerging Asian currencies of 2016  has recovered after the central bank introduced measures to reduce volatility in the ringgit and domestic forex market. This year, it has gained more than 4 percent against the US dollar.


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