Malaysia’s central bank expected to maintain interest rate at historic low of 1.75%: analysts

MALAYSIA’S central bank is likely to maintain its historical low benchmark interest rate at the end of its third monetary policy meeting of the year on Wednesday (May 11) to support the country’s economic growth, analysts told The Business Times.

Since July 2020, Bank Negara Malaysia’s overnight policy rate (OPR) has remained at 1.75 per cent. 

Economists and market analysts noted that an unchanged OPR will continue to support the growth momentum of the economy as the country only resumed all business activities in September 2021 and reopened its international borders in April this year.

Wong Chin Yoong, an economics professor at the University Tunku Abdul Rahman Malaysia, said there is no urgent need for the government to raise the rate now as the country’s inflation rate is still at a manageable level.

Malaysia’s consumer price index (CPI) rose 2.2 per cent to 125.6 in March this year, mainly driven by escalating food and non-alcoholic beverages prices.

“The worst was in April last year, Malaysia’s CPI increased 4.7 per cent. Even so, Bank Negara did not adjust the interest rate. As the market is now in recovery mode, it needs more positive news to fuel the growth. An interest rate hike will dampen the market sentiment,” said Wong.

Peter Lim, chief research officer of Trident Analytics, noted that although there are some calls for Bank Negara to act following the US Federal Reserve made its biggest interest rate rise in 22 years last week, Malaysia - which is in a still-nascent recovery stage - is not in the position to do so.

The US central bank lifted its interest rate by 50 basis points last Thursday to contain soaring inflation. The announcement triggered other countries like India, Australia and the UK to tighten their monetary policy.

“Most developed countries have resumed their business activities in the second half of last year, but Malaysia just started its recovery mode last September so an interest rate hike will not be favourable,” he said.

Ivy Ng, CGS-CIMB Securities head of Malaysia research, also expects Bank Negara to keep interest rates steady this week, although she feels there could be a hike later this year. “We expect there will be 2 adjustments (by Bank Negara) in the second half of this year, a 25 basis point hike in each adjustment. This is in response to the Fed’s move to increase its benchmark interest rate to curb high inflation,” she said.

Ahead of its meeting this week, Bank Negara has projected Malaysia’s economy to expand by between 5.3 per cent and 6.3 per cent this year, on increasing global demand and higher commodity prices. The government will announce the economic performance of the first quarter on Friday (May 13). On Monday, Moody’s Analytics said in a statement that it projected the economy to grow 1.1 per cent quarter-on-quarter in the first 3 months of 2022, after the 6.6 per cent growth in the fourth quarter of last year.