Bank Negara Malaysia leaves rates unchanged in July

At its meeting on 10–11 July, the Monetary Policy Committee of Bank Negara Malaysia (BNM) decided to maintain the Overnight Policy Rate (OPR) at 3.00%, in line with market expectations.

BNM stood pat in part as it anticipates that the government’s recent rationalization of fuel subsidies will raise inflation; diesel prices spiked over 50% in June as authorities removed blanket aid and shifted to more targeted energy assistance in order to tame the budget deficit. Even though both headline and core inflation averaged 1.8% in the first five months of the year, the Bank expects it to trend higher in the second half of 2024, prompting the Bank’s wait-and-see decision. Additionally, in making its decision, the BNM took into account sustained strength in economic activity, underpinned by resilient domestic expenditure, better export performance, and expected further boosts from tourism and the global tech upcycle, which could further fan domestic price pressures. Meanwhile, the Bank said the recent strengthening of the ringgit provided further leeway for it to hold rates stable.

The BNM said that monetary policy was currently “conducive to sustainable economic growth amid price stability”;in line with this, our Consensus continues to be for the OPR to remain unchanged by year-end, as price pressures intensify and the interest rate differential with the U.S. Fed remains strongly negative. The BNM is scheduled to convene next on 4–5 September.

United Overseas Bank analysts Julia Goh and Loke Siew Ting expect no change to the policy rate this year: “A neutral tone in the latest [monetary policy statement] and the balance of risks reinforce our view of a stable OPR at 3.00% for the rest of the year. This alongside the coordinated initiatives by authorities are expected to provide support to the MYR [the ringgit] towards year end as the Fed is widely anticipated to kick off its rate cut cycle in Sep. That said, wildcards to our OPR and FX calls would primarily be unexpected spillover effects from further domestic policy changes, emerging geopolitical risks and China’s lukewarm economy.” EIU analysts echoed this view: “Our outlook remains unchanged: BNM will maintain the OPR at 3% throughout 2024, given our view that consumer price inflation will average 2.5% in 2024 and that the ringgit will close the year at M$4.63:US$1. Looking ahead to 2025, stronger economic growth, subsidy rationalisation measures and an increase in civil-service salaries will support underlying inflation. Consequently, we expect BNM to keep the OPR unchanged, in order to pre-emptively manage excessive inflationary pressures.”

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