BNM’s latest decision cements view that policy rates will remain on hold – Economist

KUALA LUMPUR (July 11): Bank Negara Malaysia’s (BNM) monetary policy decision announced on Thursday reinforces the widespread view that the central bank will probably keep its benchmark interest rate unchanged until the end of the year, economists said.

Central banks in Asia, including Malaysia, are bracing for higher interest rates in developed economies struggling to contain inflation. The U.S. Federal Reserve is also expected to cut interest rates less frequently and later this year, alarming policymakers.

But Malaysia’s economy expanded strongly in the first quarter, “implying little need for immediate support,” Capital Economics said in a note. Bank Negara Malaysia also sounded “optimistic” in its latest statement, it said.

On Thursday, BNM kept its overnight policy rate unchanged at 3% amid solid economic growth and subdued inflation. The decision comes as Bloomberg A survey of economists unanimously called for the central bank to maintain the status quo in the fourth of six reviews planned this year.

BNM has kept its policy rate unchanged for more than a year since a 25 basis point hike in May 2023. The latest economic data suggests the central bank is in no rush to raise or cut interest rates.

Australia and New Zealand Banking Group said inflation could rise depending on the impact of upcoming petrol subsidy rationalisation on overall prices.

Still, any increase in inflation due to subsidy rationalisation would be seen as a “temporary adjustment that does not justify policy rate action”, the bank said.

The government has fluctuated the retail price of diesel in Peninsular Malaysia, which now stands at RM3.35 per litre from RM2.15 previously. A rationalisation of the subsidy on RON95, the most widely used gasoline, which is now capped at RM2.05 per litre, is expected to follow suit.

The BNM itself recognises the risk of higher inflation due to developments in global commodity prices and financial markets, as well as “the extent to which further domestic policy measures on subsidies and price controls have a knock-on effect on broader price developments”.


Leave a Comment