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Malaysia Monetary Policy July 2019

Malaysia: BNM holds policy rate in July at 3.00%

The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BMN) kept the overnight policy rate unchanged at 3.00% at its 9 July meeting, as had been expected by market analysts, after cutting rates at the previous meeting in May.

The decision to stand pat was likely motivated by a desire to judge the impact of recent easing before making any further moves. Moreover, the Bank expects a pick-up in inflationary pressures going forward as the effect of last year’s zero-rating of the VAT fades, while growth remains pillared by strong domestic demand conditions notwithstanding moderating global growth and trade tensions. The Bank reiterated that its current monetary policy stance was accommodative and supporting the economy.

In its communiqué, BNM gave no explicit guidance as to the future direction of monetary policy. Most of our panelists see rates staying at their current level for the rest of the year, although some panelists are forecasting a cut.

This is the case for Euben Paracuelles, an analyst at Nomura, who noted:

“We continue to expect another 25bp policy rate cut by BNM to 2.75%, most likely to be delivered at BNM’s September meeting. With inflation likely to remain subdued, we believe BNM has scope to respond to a worse-than-expected growth downturn at a time when fiscal policy is more constrained.”

The next monetary policy meeting is scheduled for 12 September.

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