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Malaysia Monetary Policy November 2019

Malaysia: Bank Negara Malaysia keeps key policy rate steady in November

The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) kept the overnight policy rate unchanged at 3.00% at its 5 November meeting. FocusEconomics panelists had been split over whether the Bank would cut rates again or hold at this month’s meeting.

The Bank’s decision to maintain its key policy rate was guided by low inflation and incoming economic data pointing to moderating growth, which is in line with the BNM’s expectations. Inflation ticked down to 1.1% in September (August: 1.5%) and the BNM continues to see inflationary pressures picking up slightly but remaining subdued overall moving into next year. The Bank maintained its view that its current monetary stance is both “accommodative and supportive of economic activity” and likely wanted to allow space for further easing next year if the global backdrop worsens. The BNM highlighted that strong domestic demand should drive growth of between 4.3% and 4.8% this year; however, trade tensions, a slowing global economy, and lower commodity prices remain forefront risks to the outlook.

The communiqué offered little forward guidance, other than stating that it would “continue to assess the balance of risks to domestic growth and inflation, to ensure that the monetary policy stance remains conducive to sustainable growth amid price stability” and that growing headwinds to the global economy could dampen Malaysian trade prospects. Nevertheless, most of our panelists forecast additional easing in 2020. Analysts at Nomura, for example, explained:

“We believe BNM continues to leave the door open to further monetary policy easing, given its concerns over the global economy and the downside risks around the growth outlook. […] the fact that BNM maintained its growth projections suggest these risks have not yet materialized sufficiently to decide to shift to a more accommodative policy stance. […] Thus, we still think BNM will cut again, but now pencil in a 25bp cut in Q1 2020.” ?

The next monetary policy meeting is scheduled for 21–22 January 2020.

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