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Malaysia’s central bank holds policy rate steady at 3%, as expected

By Thursday March 2nd, 2017 No Comments

KUALA LUMPUR (NewsRise) – Malaysia’s central bank Thursday kept the benchmark interest rate unchanged as widely-expected, as it relied on resilient economic growth and subdued domestic demand to cushion a pricing pressure from costlier crude oil.

Bank Negara Malaysia’s monetary policy committee held the Overnight Policy Rate at 3.00% at its second of the six scheduled meetings this year, the central bank said in a statement. BNM has stood pat on the benchmark interest rate since July 2016 when it had unexpectedly cut the policy rate by 25 basis points.

“At the current level of the OPR, the stance of monetary policy is accommodative and supportive of economic activity,” BNM said. The central bank will continue to “assess the balance of risks surrounding the outlook for domestic growth and inflation,” it said.

Economists expect interest rates in Malaysia will likely remain steady as pressure for additional monetary support ebbs with economic growth picking up, while elevated household debt–equivalent to around 90% of gross domestic product–gives the central bank little room to tighten policy.

“The tone of today’s statement suggests that the central bank is in little hurry to adjust monetary policy settings any time soon,” said Capital Economics’ analyst Krystal Tan. “Looking ahead, we expect BNM to keep interest rate steady for the rest of 2017.”

Malaysia’s economic expansion accelerated to 4.5% year-on-year in the final quarter of 2016, powered mostly by private sector spending and services. For the rest of 2017, BNM said stronger exports and domestic demand will help sustain economic growth.

Consumer prices in Southeast Asia’s third-largest economy, meanwhile, sharply rose to 3.5% in January driven by higher prices of tobacco and alcohol as well as costlier services but fell 0.3% when compared to December.

Headline inflation would remain “relatively high” in the first half of the year before moderating, BNM said. “The cost-driven inflation is not expected to have a significant impact on the broader price trends given the stable domestic demand conditions,” the central bank added.

Inflation could continue to edge higher in February to 4.0% from a year earlier due to rising oil prices, said Weiwen Ng, a Singapore-based economist at Australia & New Zealand Banking Group. The average fuel price increase has been around 31% year-on-year in February. That could potentially add 2.4 percentage-points to the headline consumer price index, he said. “Still, we do not expect BNM to react to these spikes in headline CPI and rather focus on core inflation,” Ng added.

(Source: Nikkei Asian Review)

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