At its first monetary policy meeting of 2024 on Wednesday, Bank Negara Malaysia announced that it would keep its overnight policy rate steady at 3%. The move was in line with forecasts in a Bloomberg survey of 21 economists. This is the first time the central bank has decided not to make further adjustments since it raised interest rates by 25 basis points in May last year.
Malaysia’s central bank said that although economic growth is expected to improve in 2024 and inflation is expected to remain moderate, there are still uncertain risks. In particular, the government plans to adjust price controls and subsidy policies later this year, which may have an impact on inflation and consumer demand.
Currently, Malaysian policymakers are adopting a wait-and-see approach as domestic inflation and economic prospects face threats from the fragility of the global economic recovery. The government plans to improve its fiscal position through more targeted aid and higher taxes, but this could put pressure on Malaysia's already lower-than-expected growth.
The central bank further noted that inflation is expected to "remain moderate" in 2024, which will reflect stable costs and demand. The inflation outlook will be mainly affected by changes in subsidies and price control policies, as well as fluctuations in global commodity prices and financial markets.
Analysts at OCBC Bank predict that Bank Negara Malaysia is likely to keep interest rates unchanged this year. Lavanya Venkateswaran, an economist at OCBC Bank in Singapore, emphasized that attention will be on the timing and mechanism of targeted fuel subsidies.
In addition, the central bank mentioned that the recent depreciation of the Malaysian currency ringgit was mainly affected by external factors and had nothing to do with domestic economic performance and prospects. The central bank pledged to ensure sufficient liquidity to support the orderly operation of the domestic foreign exchange market and to closely monitor price fluctuations in global markets.
Bloomberg economist Tamara Mast Henderson said a rate cut is less likely in the short term due to the risk of rising inflation. Bank Negara is expected to keep the current policy rate unchanged until 2024, barring a deep or prolonged global recession.
Finally, Bank Negara Malaysia emphasized that it will ensure that monetary policy is conducive to sustainable economic growth while maintaining price stability. BNM will remain alert to developments to assess domestic inflation and growth prospects, taking into account external challenges such as global financial market volatility and geopolitical tensions.
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