Malaysia's central bank hits pause on rates as price pressures ease
KUALA LUMPUR: The central bank of Malaysia decided to maintain its benchmark interest rates on Thursday as predicted. This decision comes as there are indications of a decline in economic growth and a decrease in inflation. Experts believe that the interest rates will remain unchanged for the remainder of the year.
The economy in Southeast Asia experienced a significant boost, reaching its highest point in 22 years with a growth rate of 8.7% in the past year. However, the future seems uncertain due to the decrease in global demand and the vulnerability of the ringgit currency, which may lead to the outflow of capital.
Bank Negara Malaysia (BNM) kept its overnight policy rate unchanged at 3.00 per cent on Thursday, in accordance with market predictions, following its surprising rate increase in May.
The primary bank expressed that its "financial strategy position is moderately accommodative and still backing the economy" at the present rate of interest.
The central bank stated that the Monetary Policy Committee will guarantee that the monetary policy approach continues to support sustainable economic expansion while maintaining price stability.
The predicted outcome for headline and core inflation in the latter part of the year is anticipated to decline, mirroring initial expectations.
The central bank, BNM, predicts that the average inflation rate in 2023 will range between 2.8 percent and 3.8 percent, a decrease from the 3.3 percent recorded last year. Additionally, economic growth is anticipated to slow down to approximately 4 percent to 5 percent in the current year.
Alex Holmes, a senior economist at Oxford Economics, stated that there is no anticipation for any changes in policy from BNM in the coming year.
Concerns regarding the expansion of the economy are anticipated to increase in the upcoming months, with the depreciation of the Malaysian currency being an additional obstacle.
Holmes expressed concerns about the likelihood of further rate hikes due to the vulnerability of the ringgit, which is expected to continue facing downward pressure.
The Malaysian currency, the ringgit, has performed the worst among Southeast Asian currencies this year. The Central Bank of Malaysia, also known as BNM, has stated its intention to step in and take action in the foreign exchange markets to bring stability to the ringgit. So far, the currency has experienced a decline of almost 6 percent in comparison to the US dollar.
Almost all of the 25 economists surveyed by Reuters had predicted that the central bank would keep its overnight policy rate steady at 3.00 per cent. The majority of them also anticipated that rates would remain unaltered throughout the remaining year.
During its last policy meeting in May, the central bank made a unexpected decision to increase rates. This marked the fifth time they raised rates since the previous year. Their justification for this move was the desire to control ongoing inflation in light of strong domestic demand.
The rate of inflation has decreased in the past few months. In May, the consumer price index increased by 2.8 percent, marking its slowest yearly growth in 2021.
According to Mohd Afzanizam Abdul Rashid, who works at Bank Muamalat Malaysia, the central bank aims to maintain flexibility regarding the possibility of raising interest rates. This decision would depend on modifications in subsidies and price controls, as these factors can significantly influence inflation.
Prime Minister Anwar Ibrahim has announced that the government is currently evaluating its subsidies scheme.
BNM's rate decision on Thursday marked a crucial moment in the policy announcement realm, as it was the maiden one under the leadership of the recently instated governor, Abdul Rasheed Ghaffour. Ghaffour, a seasoned central bank expert, assumed the role on the 1st of July.
