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Strong growth gives flexibility on interest rates, says Bank Negara Malaysia chief

[KUALA LUMPUR] Malaysia's central bank governor said on Tuesday that strong economic growth and manageable inflation give it more flexibility on interest rate policy.

The bank kept its overnight policy rate unchanged at 3 per cent earlier this month as expected. It has kept the rate steady since July 2016.

"At this moment, it gives us a bit more flexibility in terms of policy formulation," governor Muhammad Ibrahim Muhammad told reporters on the sidelines of an event in Kuala Lumpur.

"It's very important that our interest rate promotes growth and at the same time makes sure inflation is always managed."

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The inflation rate hit an eight-year high of 5.1 per cent of March, prompting some analysts to predict a rate hike this year, but price pressures have eased since.

Data next week is expected to show a 3.6 per cent rise in the consumer price index from a year earlier, a Reuters poll showed.

Mr Muhammad said the direction of global oil prices will be a key factor for the inflation outlook. "So far we don't expect global oil prices to rise at such a rate that it will affect our inflation rate projection, not yet," he said.

Malaysia's economy expanded by a better-than-expected 5.8 per cent in the second quarter, while the ringgit has gained more than 6.5 per cent against the US dollar this year after being battered for the last two years.

Mr Muhammad said what was important is that the ringgit must reflect the economic strength of Malaysia. "If economic growth and inflation are under control, then the exchange rate should reflect that. This is very important because the exchange rate is a reflection of these fundamentals," he said.

REUTERS