Malaysia central bank likely to keep rates untouched until at least 2026

1:36 am Friday, January 19th, 2024

By Susobhan Sarkar and Indradip Ghosh

BENGALURU (Reuters) – Bank Negara Malaysia (BNM) will leave its overnight policy rate (OPR) unchanged at 3.00% on Jan. 24 and hold it there until at least end-2025 as price pressures are expected to increase and growth remains steady, a Reuters poll of economists showed.

That outlook was despite inflation easing to 1.5% in November – its lowest since March 2021 – and remaining far below the government’s estimate of 3%-4% for 2023, partly due to BNM hiking rates by a cumulative 125 basis points between May 2022 and May 2023.

With the Malaysian ringgit up nearly 3% against the U.S. dollar so far in 2024 as markets expect the U.S. Federal Reserve to cut rates aggressively this year, the urgency for policy easing by the BNM will be limited in the near term.

All 28 economists in the Jan. 12-18 Reuters poll predicted Malaysia’s central bank would keep its key interest rate at 3.00% on Jan. 24 for the fourth consecutive meeting.

Survey medians showed the central bank would keep the rate untouched until at least 2026 and only four of 26 economists expected at least one cut this year.

“The BNM sees policy as already slightly accommodative. It would likely take a material growth slowdown to nudge the bank into making policy more supportive,” said Alex Holmes, lead economist, Oxford Economics.

The economy which expanded 3.3% annually in Q3, 2023 was expected to grow 4.5% and 4.6% this year and next, respectively, higher than 4.1% last year.

Meanwhile, inflation was forecast to spike again in the coming quarters and average 2.5% in 2024 and 2.4% in 2025.

“Inflation is likely to creep up due to recently announced government measures, such as a 2% services tax hike, removal of subsidies for selected food and energy items…and a 5-10% luxury goods tax,” said Vincent Loo, senior economist, KAF Research.

“The collective impact of these measures is likely to drive inflation higher this year, thereby constraining the potential for policy easing by BNM.”

(For other stories from the Reuters global economic poll:)

(Reporting by Susobhan Sarkar; Polling by Devayani Sathyan; Editing by Sharon Singleton)