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KUALA LUMPUR (Nikkei Markets) — Malaysia’s central bank Thursday kept the benchmark policy rate unchanged as expected but said that it may review its stance, a change in tone that economists say paves the way for an increase in interest rates.
Bank Negara Malaysia’s monetary policy committee held the Overnight Policy Rate at 3.00% at the last of its six scheduled meetings this year, the central bank said in a statement. BNM has kept interest rates unchanged since July 2016 when it unexpectedly cut the interest rate by 25 basis points.
“Given the strength of the global and domestic macroeconomic conditions, the Monetary Policy Committee may consider reviewing the current degree of monetary accommodation,” the BNM said. “This is to ensure the sustainability of the growth prospects of the Malaysian economy.”
Economists said the latest statement suggests that BNM appears to be concerned over accelerating inflation after previously forecasting easing price pressure in the second half of the year.
“We assess the policy statement to be unambiguously hawkish,” said Sanjay Mathur, an economist at Australia & New Zealand Banking Group. “The central bank provided a positive assessment of growth conditions with a negligible reference to downside risks.”
Economic growth in 2017 is expected to come in at 5.2%-5.7% against last year’s 4.2% rise, according to the government’s annual economic report. In 2018, the pace of expansion could moderate to between 5.0% and 5.5%, the report said.
“For 2018, domestic demand is expected to remain the key source of growth,” BNM said. “Private consumption will remain the largest driver of growth, supported by continued improvements in income and overall labour market conditions.”
For 2017 as a whole, headline inflation is expected to be at the upper-end of 3%-4% forecast range, BNM said. The central bank now expects headline inflation to moderate moving into 2018 on expectations of limited effect from global cost factors.
The consumer price index – Malaysia’s main gauge of inflation – rose 4.3% in September from a year earlier, a five-month high, according to latest data from the Department of Statistics. Inflation is expected to come in between 2.5% and 3.5% next year, government forecasts showed.
BNM could raise the policy rate by 25 basis points in the coming quarters, Capital Economics said in an investor note. If the third-quarter gross domestic product data due Nov. 17 shows strong economic growth, “the odds are in favor of a rate hike as soon as the BNM’s next meeting in January,” it said.
–Jason Ng
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