Malaysia Keep Rates On Hold

Malaysia’s central bank left interest rates unchanged for an eighth meeting as policy makers juggle risks to economic growth while contending with a currency that’s the worst performer in Asia this year.

Bank Negara Malaysia kept the overnight policy rate at 3.25 percent, it said in a statement in Kuala Lumpur Thursday. The decision was predicted by all 21 economists surveyed by Bloomberg News.

Prime Minister Najib Razak is counting on domestic demand to shore up a cooling economy as global growth falters, pledging to boost consumption, spur private investment and accelerate selected infrastructure projects next year. While Malaysia’s biggest trading partners of China and Singapore have both eased monetary policy in recent weeks, it is constrained by a currency that has depreciated about 19 percent this year.

“Growth risk is a main concern now, although we’ve seen rising costs of late,” Julia Goh, a Kuala Lumpur-based economist at United Overseas Bank Ltd., said before the decision. “Our projection is for them to hold for at least into the first half of next year.”

Ringgit Decline

The ringgit dropped 0.7 percent to 4.2965 a dollar in Kuala Lumpur Thursday.

Gross domestic product is forecast by the government to increase 4 percent to 5 percent in 2016, compared with an expansion of as much as 5.5 percent this year. Inflation is projected to rise 2 percent to 3 percent next year, compared with 2 percent to 2.5 percent in 2015.

At the current level of interest rates, the stance of monetary policy remains accommodative and supportive of economic activity, Bank Negara said.

“The Monetary Policy Committee recognizes that there are heightened risks in the global economic and financial environment,” the central bank said. “These risks are being carefully monitored to assess their implications on macroeconomic stability and the prospects of the Malaysian economy.”

The economy grew 4.9 percent in the second quarter from a year earlier, expanding the least in almost two years after a new consumption tax curbed private spending. The government will release GDP figures for the third quarter on Nov. 13.

Bigger Threat

Growth could ease to as little as 4.8 percent this year and the risk of a slowdown because of the global economy is bigger than the threat of inflation, central bank Governor Zeti Akhtar Aziz said in an Oct. 11 interview. A slowdown in China has affected export orders and the government won’t be able to meet its trade targets this year, Trade Minister Mustapa Mohamed said Wednesday.

“Downside risks to growth remain high,” the central bank said. “The performance of the Malaysian economy continues to be affected by the weak external environment” and private consumption is expected to moderate, it said.

Inflation pressures could increase in coming months. Malaysia is set to raise fares for train services around Kuala Lumpur in December in the first review in more than 12 years, according to the New Straits Times, adding to higher living costs after the government boosted prices from toll roads to cigarettes. A goods and services tax of 6 percent was implemented in April as the government sought to cut the country’s reliance on oil revenue.

The central bank said Thursday headline inflation is expected to be higher in 2016, peaking in the first quarter. It also said “domestic liquidity continues to be sufficient and the financial system remains sound with healthy growth in financing.”


Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell