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Malaysia Monetary Policy March 2023

Malaysia: Bank Negara Malaysia extends hiking pause in March

At its 8–9 March meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) kept the overnight policy rate (OPR) unchanged at 2.75% for the second consecutive meeting. The decision was broadly priced in by markets.

Echoing January’s decision, the Bank opted for a wait-and-see approach to assess the lagged effects of previous policy adjustments amid mixed price signals: Headline inflation moderated for the third month running in January, while core inflation remained elevated by historical standards. At the same time, the Bank remained concerned about looming downside risks to economic growth. Stronger headwinds to the global outlook—including tighter financing conditions—bode ill for Malaysia’s growth prospects in 2023. With additional rate hikes by heavyweight central banks expected ahead, BNM maintained the OPR at an accommodative level to support the economy.

In its communiqué, the Bank struck a dovish tone, stating that it will “continue to assess the impact of the cumulative OPR adjustments, given the lag effects of monetary policy on the economy”. Against a highly volatile external backdrop, BNM should continue its balancing act between taming inflation and supporting economic growth. The Consensus among FocusEconomics panelists is for about 25 basis points of additional rate hikes this year.

The next monetary policy meeting is scheduled for 2–3 May.

Analysts at the EIU see additional hikes ahead:

“We expect BNM to sanction a 25-basis-point increase in the OPR at the next monetary policy committee meeting, before switching to a neutral stance, amid growing evidence of a slowdown in economic activity.”

Euben Paracuelles and Rangga Cipta, analysts at Nomura, opposed this view:

“We maintain our view that BNM has already reached the end of its hiking cycle and will maintain its policy rate at 2.75% this year and in 2024. […] We acknowledge the risk to our forecast is BNM delivering a hike later in the year […]. However, we think this would require a sharp and quick turnaround in the growth outlook, which would likely be led by an improvement in external demand and China’s recovery lifting global growth, as well as commodity prices. However, at this stage, this scenario is unlikely owing to the sharp declines in export growth of Malaysia’s regional peers and the still-intensifying tech downtrend.”

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