BENGALURU (Reuters) – Bank Negara Malaysia (BNM) is set to keep its key interest rate steady at 3.0% this Thursday and is likely to maintain this rate through at least 2025, according to a recent Reuters poll of economists. The decision comes as Malaysia’s economic growth remains strong and inflation stays manageable.
Currently, inflation in Malaysia is at a controlled 2.0%, and the Malaysian ringgit has recently strengthened, shifting from being one of the weakest Asian currencies to one of the strongest. This development indicates that BNM will likely refrain from cutting rates anytime soon to avoid weakening the currency and potentially triggering inflation.
In the Reuters poll conducted between August 27 and September 2, all 30 economists surveyed predicted that BNM would hold its overnight policy rate at 3.0% during its meeting on September 5. A median forecast from a smaller sample within the poll suggested that rates would remain unchanged until at least 2026, consistent with earlier projections this year.
These expectations contrast with those for major central banks, many of which are anticipated to lower rates at least once in 2024.
“BNM has no reason to adjust the policy rate at this time, given that growth is robust and inflation has been surprisingly moderate,” said Lavanya Venkateswaran, Senior ASEAN Economist at OCBC Bank.
Malaysia’s gross domestic product (GDP) expanded by 5.9% in the last quarter, marking the fastest growth rate in 18 months, driven by strong household spending, exports, and investment.
Inflation is projected to rise in the latter half of 2024, partly due to a recent policy change reducing diesel subsidies. However, a rate cut from BNM in the near future remains unlikely.
“There is still uncertainty surrounding further fuel subsidy rationalization, and the central bank is likely monitoring potential secondary effects from the earlier diesel subsidy reduction, making a rate cut appear premature,” noted Moorthy Krshnan, Senior Asia Economist at Pantheon Macroeconomics.
In a statement, BNM acknowledged that inflation could trend higher following the June diesel subsidy cuts but emphasized that it remains manageable.
The Malaysian ringgit has appreciated by approximately 6% this year, as rising expectations of a U.S. Federal Reserve rate cut have weakened the U.S. dollar. This strengthens the case against a rate cut by BNM, as it could be inflationary.
“The primary factor influencing the ringgit has been the weakening U.S. dollar, driven by growing concerns over U.S. economic growth. With the Federal Reserve expected to cut rates, the narrowing interest rate differential should be favorable for the ringgit,” added Krshnan.
