Malaysia Central Bank Keeps Rates Steady Amid Slowing Economy and Lower Inflation

malaysia central bank keeps rates steady amid slowing economy and lower inflation.jpg Business

In the wake of moderating economic growth and a cooling inflation rate, the Bank Negara Malaysia (BNM) is set to maintain its key policy rate at 3.00% this Thursday, echoing the no-change stance adopted by the majority of its Asian counterparts, according to a recent Reuters poll of economists. The inflation in Malaysia, which hit a two-year low of 2.0% in July, is expected to cool even further, leading to the speculation that the BNM, which has increased rates by a modest 125 basis points in the current cycle, has concluded its tightening.

Despite the weaker ringgit, which has declined over 5% this year, the BNM’s decision to maintain higher rates for an extended period could potentially slow down the decrease in inflation. The poll, which consisted of 27 economists, unanimously predicted that the central bank will keep its benchmark overnight policy rate unaltered at 3.00% at its meeting on September 7, with medians indicating a consistent rate through 2024.

Malaysia’s Central Bank Expected to Hold Key Policy Rate Steady at 3%

The Bank Negara Malaysia (BNM) is anticipated to maintain its key policy rate at 3.00% on Thursday, reflecting the same no-change trend seen among its Asian peers. This comes amidst indications of slower economic growth and declining inflation rates, as revealed by a recent Reuters poll of economists.

Economic Factors Influencing Policy Decisions

July saw the Southeast Asian nation’s inflation drop to a two-year low of 2.0%. The Central Bank, which does not primarily target inflation in determining monetary policy, has indicated that inflation is likely to continue to cool. Given that the BNM has raised rates by a modest 125 basis points in the current cycle, it appears that its tightening phase has concluded. However, with the weak ringgit down over 5% this year, rates are likely to remain higher for longer to prevent rapid inflation decline.

Consensus Prediction: No Change in Policy Rate

The poll, conducted from Aug. 29 to Sept. 4, indicated a unanimous forecast among the 27 economists that the BNM will keep its benchmark overnight policy rate steady at 3.00% at its Sept. 7 meeting. Projections showed it remaining the same until 2024. Lavanya Venkateswaran, a senior ASEAN economist at OCBC Bank, noted that the BNM has limited reasons to alter its policy stance for the upcoming meeting, given easing inflationary pressures.

Future Economic Considerations

Despite the consensus, some economists have warned that inflation could potentially rebound once pandemic-era subsidies are lifted, indicating the battle against price increases may not be over. However, a combination of slowed domestic economic growth, a sluggish global economy, and a weaker China – Malaysia’s largest trade partner – would likely compel the central bank to maintain the current rate for an extended period.

My Takeaways

This consensus among economists reflects a pervasive economic trend in the region, with central banks maintaining current policy rates amidst uncertain economic conditions. However, the potential rebound of inflation and the pressure from a weaker global economy and trade partners like China may pose significant challenges for Malaysia’s monetary policy in the near future. Observing how BNM navigates these challenges will provide valuable insight for other central banks facing similar economic landscapes.

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