Malaysia: Bank Negara Malaysia maintains rates in May
In line with market expectations, at its meeting on 8-9 May, the Monetary Policy Committee of Bank Negara Malaysia (BNM) decided to maintain the overnight policy rate (OPR) at 3.00%, extending its monetary policy pause for the sixth meeting running.
The Bank’s decision was influenced by headline and core inflation declining to 1.7% and 1.8% in Q1 2024, respectively, and the BNM’s projections that price pressures will remain muted this year. Moreover, early data suggests that domestic activity improved in the first quarter due to resilient domestic spending, rebounding exports, and investment activity buoyed by multi-year projects and national master plans. Meanwhile, the Bank stated that it now sees an increased prospect of higher-for-longer interest rates, especially in the U.S. Given recent depreciatory pressures on the ringgit against the USD, this dynamic further motivated the BNM to maintain rates at current levels.
The BNM did not provide explicit forward guidance on the future direction of interest rates but stressed that the current rate level “remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects”. Our panel continues to see the Bank’s hold extending through end-2024. However, a weaker-than-expected ringgit and potential changes to price controls and subsidies this year pose upside risks to the OPR. The U.S. Fed’s pivot is a key factor to watch.
The next monetary policy meeting is scheduled for 10–11 July.
United Overseas Bank analysts Julia Goh and Loke Siew Ting commented:
“The unchanged forward guidance in the latest MPS did not signal any potential changes in the monetary policy settings. As such, we expect the OPR to be kept at 3.00% given a balance of risks between growth and inflation. […] Risks to our forecasts will depend on two key factors – firstly, the trajectory of growth particularly with spillovers from external risks and higher costs that would test the resilience of demand. Secondly, the course of inflation and extent of demand-side pressures.”
Nomura analysts added:
“We reiterate our forecast that BNM will leave its policy rate unchanged at 3% throughout 2024, despite prospects of a cutting cycle among global central banks later in the year. In addition to an improving growth outlook, we expect gradually rising inflation due to the government’s subsidy rationalization and revenue-raising measures, which are already materializing with the implementation of the sales and services tax hike on 1 March.”