Malaysia: BNM stands pat in November, but tone turns more hawkish
November 9, 2017
On 9 November, Bank Negara Malaysia (BNM) decided to keep the Overnight Policy Rate unchanged at 3.00%, as widely expected by market analysts. The Bank has held the rate unchanged since July 2016.
The communiqué expressed the Bank’s growing confidence in Malaysia’s current economic growth and the outlook for 2018. BNM noted that domestic demand has been the key driver of growth amid robust private consumption, carried by favorable labor market conditions and strong private investment. Moreover, the external sector has benefited from a pick-up in global trade and strong regional growth.
Regarding price pressures, the Bank now sees inflation hovering in the upper range or slightly above its comfort range of 2.0%?3.0% through year-end, despite inflation coming in at 4.3% in September. Global oil prices movements were the key driver of higher inflation, according to the Bank. It previously expected inflation to moderate in H2 2017, but now projects the moderation to happen in 2018 as effects from global cost factors ease. In addition, it stated that vibrant domestic demand and uncertainties in global oil prices could be an upside risk to inflation. Despite robust economic growth and inflation overshooting the Bank’s comfort range, monetary policy remains very accommodative.
The tone of the communiqué turned slightly hawkish in November as the Bank noted that the strong economic growth at home and abroad may prompt it to “consider reviewing the current degree of monetary accommodation”, suggesting the Bank could consider a rate hike sometime next year.
The next monetary policy meeting is scheduled for 24?25 January 2018.
Author: Lindsey Ice, Economist