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Malaysia Monetary Policy November 2020

Malaysia: Bank Negara Malaysia holds rate again in November

At its 3 November meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) kept the overnight policy rate at its all-time low of 1.75%. The decision marked the second consecutive hold and was in line with a thin majority of market analysts’ expectations.

The Bank’s decision was fueled by signs of a notable recovery in activity in Q3, and came against the backdrop of muted inflationary pressures. Gradually reviving demand from major trading partners has helped to bolster exports, while the easing of Covid-19 measures at home has supported domestic activity. However, the recent reintroduction of restrictions, both globally and nationally, threatens the pace of recovery in Q4. In 2021, activity is seen improving further, although the recovery is expected to be asymmetrical as certain industries lag behind and the labor market improves at a slower pace. On the inflation front, consumer prices dropped at the sharpest annual pace in over a decade again in September and price pressures are expected to remain muted overall this year due to weak oil prices. Next year, inflation is expected to return, but will continue to be affected by commodity and oil price movements.

Looking ahead, the Bank struck a relatively neutral tone in its communiqué, highlighting that the current monetary policy stance, in addition to previous easing, will continue supporting the recovery. That said, the Bank stressed that downside risks, particularly ongoing uncertainty over the course of the pandemic, still persist.

Commenting on the monetary policy outlook, analysts at Nomura said:

“We think today’s decision is just a pause and does not signal the end of the rate-cutting cycle. We therefore keep our forecast of BNM cutting its policy rate again by 25bp to 1.5%, but now delivered in Q1 2021. We believe activity data and headline inflation in Q4 will still substantially disappoint official forecasts, prompting further BNM easing.”

The next monetary policy meeting is scheduled for 19–20 January 2021.

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