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Malaysia Monetary Policy May 2021

Malaysia: Bank Negara Malaysia holds fire in May

At its 6 May meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) left the overnight policy rate unchanged at 1.75%, marking the fifth consecutive hold. The decision was widely expected by market analysts.

Signs of an ongoing economic recovery amid relatively well-anchored inflation expectations drove the Bank’s decision to hold the rate. Available indicators suggest that Q1’s recovery carried over into April and should gain further steam in the current quarter, notably on the back of upbeat manufacturing activity in the electrical and electronics subsector, as well as oil and gas production. On the price front, the Bank expects inflation to temporarily spike in Q2 owing to a low base effect, and sees it averaging between 2.5% and 4.0% in 2021—above 2020’s levels—due to higher oil prices on average. However, once again the Bank reiterated that inflation remains closely linked to commodity and oil price fluctuations.

Looking ahead, the Bank’s communiqué did not include any strong forward guidance. Although progressing vaccination efforts bode well for the growth outlook, the Bank highlighted that downside risks persist, including lingering uncertainty over the pandemic and the pace of the vaccine rollout.

Commenting on the Central Bank’s decision and the outlook for monetary policy, Dhiraj Nim and Sanjay Mathur, economists at ANZ, said:

“While maintaining its policy rate, Bank Negara Malaysia (BNM) remained hopeful of a recovery despite the surrounding uncertainties. However, it believes that the growth impact of the latest virus wave will be less severe. Its inflation outlook remains broadly unchanged as well as its accommodative, data-dependent policy stance. We do not expect additional rate cuts for the remainder of 2021. Instead, fiscal support will likely take the lead to support growth.”

The next monetary policy meeting is scheduled for 8 July.

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