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Malaysia Monetary Policy September 2023

Malaysia: Bank Negara Malaysia extends pause in September

At its 6–7 September meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) left the overnight policy rate (OPR) unchanged at 3.00%, following its hold in July. The decision was in line with FocusEconomics’ Consensus.

A sustained disinflationary trend—in line with the Bank’s expectations—supported September’s hold. The BNM noted that it expects inflation to continue declining in the second half of 2023 due to a high base effect from last year and cooling external price pressures. Consequently, authorities deemed the current level of the policy rate supportive of both economic growth and disinflation.

The Bank did not provide explicit forward guidance. However, it reiterated, as in previous meetings, that it would continue to ensure that “the monetary policy stance remains conducive to sustainable economic growth amid price stability”. Given stronger external headwinds to the economy, domestic risks to the outlook—including policies on subsidies and price controls—and the elevated political costs of further rate hikes amid Malaysia’s high household debt levels, further rate increases are unlikely.

The majority of our panelists foresee the OPR remaining at current levels for the rest of 2023 and through at least Q4 2024. Nevertheless, strong depreciatory pressures on the ringgit against the USD and potential price spikes due to the El Niño weather event pose upside risks to the policy rate.

The last scheduled monetary policy meeting for the year is set for 1–2 November.

On the outlook, Nomura analyst Euben Paracuelles commented:

“Overall, we maintain our forecast that BNM is done with its hiking cycle and will be on-hold this year […] and in 2024. Our forecast is consistent with the more dovish signals in today’s policy statement, and remains supported by our view of still-declining inflation and a dimming growth outlook because of weakening exports of goods and services, which will likely have quick spillovers for domestic demand.”

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