By Pranoy Krishna
BENGALURU (Reuters) - In a recent Reuters poll of economists, it has been predicted that Bank Negara Malaysia (BNM) will maintain its key interest rate at 3.00% on Sept. 5 and continue to keep it unchanged at least through 2025. This decision comes as a result of robust growth and controlled inflation levels in the country.
Despite the current inflation rate of 2.0%, the Malaysian ringgit has seen a significant turnaround, transitioning from one of the weakest performing Asian currencies to one of the strongest in recent weeks. This shift indicates that the central bank is likely to refrain from any rate cuts in the near future, aiming to prevent currency depreciation and the importation of inflation.
All 30 economists surveyed in the poll anticipate that BNM will maintain its overnight policy rate at 3.00% this week, with a median projection suggesting that rates will remain stable until at least 2026. This forecast remains consistent with earlier predictions made at the beginning of the year.
Compared to other major central banks, which are expected to implement rate cuts by 2024, BNM's decision to hold rates steady is supported by the country's strong economic growth, which reached 5.9% in the last quarter, driven by robust household spending, exports, and investments.
Although inflation is projected to rise in the latter half of 2024 due to uncertainties surrounding a recent policy on diesel subsidy reduction, experts believe that a rate cut by the central bank in the coming months is unlikely. The bank is closely monitoring the potential second-round effects of previous subsidy adjustments before considering any policy changes.
With the Malaysian ringgit appreciating by approximately 6% this year, driven by expectations of interest rate cuts by the Federal Reserve, BNM is cautious about implementing any rate cuts that may lead to inflationary pressures. The weakening U.S. dollar, coupled with growth concerns in the U.S., has created a favorable environment for the ringgit, as the interest rate differentials narrow.
Overall, the decision to maintain the key interest rate reflects BNM's commitment to sustaining stable economic growth and manageable inflation levels in Malaysia. By keeping rates unchanged, the central bank aims to support the country's economic momentum and prevent any adverse impacts on the currency and inflation rates.
