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Malaysia Monetary Policy September 2021

Malaysia: Bank Negara Malaysia holds rate in September

At its 9 September meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) kept the overnight policy rate unchanged at 1.75%, marking the seventh consecutive hold and meeting market expectations.

The Bank’s decision to maintain its loose stance was driven by a slower recovery due to the domestic Covid-19 curbs in place, and came amid well-anchored inflation expectations. Still-surging numbers of Covid-19 infections have prompted authorities to maintain tight restrictions nationwide, hindering activity in turn. However, a notable acceleration in the vaccination rate since August has allowed the partial easing of restrictive measures, which, coupled with the government’s stimulus packages presented throughout the year, has enabled the recovery to continue. On the inflation front, BNM expects inflationary pressures to remain in check this year amid spare capacity in the economy. Notably, it projects the headline reading to average between 2.0%–3.0% in 2021, and once again reiterated that inflation remains closely linked to commodity and oil price fluctuations.

Looking ahead, the Bank’s communiqué did not include any strong leads on forward guidance. Stressing that risks to the growth outlook remain tilted to the downside in light of the spread of new Covid-19 variants and a slower-than-anticipated global recovery, the Bank highlighted that future decisions remain data-dependent. Meanwhile, all of our panelists expect BNM to hold the key rate at 1.75% through to year-end.

Commenting on the outlook for monetary policy, analysts at Goldman Sachs said:

“We expect BNM to keep the policy rate on hold at 1.75% this year as the country recovers from the virus shock, and as policymakers rely more heavily on measures such as the loan moratorium (July–December 2021) and fiscal transfers to support the economy amid renewed lockdowns. We expect that the vaccination progress in the country could allow a more durable reduction in mobility restrictions by year-end, with the reopening boost making itself felt in H1 2022. We continue to expect stronger growth amidst rising core inflation pressures next year could create enough momentum for some policy tightening in Q2 2022.”

The next monetary policy meeting is scheduled for 3 November.

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