Malaysia: Central Bank holds rate steady at 3.25%
May 7, 2015
At its 7 May monetary policy meeting, the Central Bank decided to leave the Overnight Policy Rate (OPR) unchanged at 3.25%. The decision was in line with market expectations.
Bank Negara Malaysia stated that the global economic expansion is continuing, albeit at a moderate and uneven pace. Although emerging economies slowed in the first quarter, they continue to be the main contributor to global growth. Asian growth is mainly driven by robust domestic demand. In Malaysia, the economy is being propped up by domestic demand, and is expected to continue to do so moving ahead. As the impact of April’s newly-implemented Goods and Services Tax (GST) passes through to households, private consumption is expected to moderate, however consumption expenditure will be supported by a steady increase in wages and employment. Export-oriented industries will benefit from further investment as advanced economies continue to show signs of improvement, but lower commodity prices will affect exports.
Subdued domestic energy prices have had a moderating effect on inflation. However, over the course of the year, inflation is expected to show an upward trend as the effects of the GST are passed through to the economy. That Bank noted that these factors will likely offset each other and that “(u)nderlying inflation is expected to remain contained amid the stable domestic demand conditions.”
Finally, the Bank remarked that, “the stance of monetary policy remains accommodative and supportive of economic activity.” The Bank further noted that it would continue to assess risks of potentially destabilizing financial imbalances to ensure the stability of the Malaysian economy.
Author: Robert Hill, Economist