Malaysia’s central bank, Bank Negara Malaysia (BNM), is expected to maintain its key interest rate at 3.00% through 2025, according to a recent poll of economists. Despite robust growth and well-controlled inflation, there is no immediate need for a rate cut. The Malaysian ringgit’s recent appreciation further supports the case for keeping rates steady to prevent currency depreciation and imported inflation.
BNM is likely to hold off on rate cuts in the wake of 5.9% GDP growth in the last quarter, driven by strong consumer spending, exports, and investments. Although inflation may increase in the second half of 2024 due to uncertainties surrounding diesel subsidies, the central bank is expected to maintain its current stance given the positive economic indicators.
The central bank’s decision to leave interest rates unchanged is also influenced by external factors, such as the potential Federal Reserve rate cuts, which have contributed to the Malaysian ringgit’s 6% appreciation this year. With expectations of a weaker U.S. dollar, a rate cut in Malaysia could lead to inflationary pressures and negatively impact the currency.
Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank, emphasized that there is no urgency for BNM to adjust its policy rate given the current growth trajectory and inflation levels. Moorthy Krshnan, senior Asia economist at Pantheon Macroeconomics, echoed this sentiment, highlighting the need for caution in light of ongoing fuel subsidy rationalization.
Malaysia’s central bank is likely to maintain its key interest rate at 3.00% for the foreseeable future. With strong economic growth, well-managed inflation, and a stable exchange rate, there is little incentive for BNM to make any immediate changes to monetary policy. As global economic conditions evolve, Malaysia will continue to monitor external developments to ensure sustainable growth and price stability.