You are here
Malaysia holds rate as economic outlook weakens, ringgit drops
[KUALA LUMPUR] Malaysia held its key interest rate steady for a third straight meeting as policy makers contend with a faltering economic outlook while facing pressure to shore up a weakening currency.
Bank Negara Malaysia kept the overnight policy rate at 3.25 per cent, it said in a statement in Kuala Lumpur today. The decision was predicted by all 20 economists surveyed by Bloomberg News. The central bank last raised rates in July.
Crude prices at half the level of a year ago have forced oil-producing Malaysia to cut government expenditure as Prime Minister Najib Razak announced last week growth may be slower than initially estimated in 2015.
With Singapore on Wednesday becoming at least the ninth economy to ease monetary policy this month, analysts say Bank Negara may have limited scope to use its key rate to support the ringgit.
"With all this pressure around, it's fairly unlikely that they want to hike interest rates at this point, even though the currency is under stress," Ho Woei Chen, an economist at United Overseas Bank Ltd in Singapore, said before the decision.
"The most likely outcome for them is actually to be on hold for this year, because of growth concern, because inflation may actually be not as bad as we original forecast."
The currency has fallen about 3.4 per cent against the US dollar this year, the worst performer among 11 major Asian currencies tracked by Bloomberg. The ringgit depreciated 0.6 per cent to 3.6185 in Kuala Lumpur, data compiled by Bloomberg show. The currency slid to 3.6277 on Jan 21, the weakest level since April 2009.
Malaysia's foreign-exchange reserves have dropped to the lowest level since March 2011 amid speculation the central bank is intervening to curb the decline in the currency.
The economy is projected to expand 4.5 per cent to 5.5 per cent this year, Mr Najib said Jan 20, compared with an earlier forecast of as much as 6 per cent growth.
Inflation this year will be between 2.5 per cent and 3.5 per cent, central bank Governor Zeti Akhtar Aziz said on Tuesday. The government in October projected consumer price gains to average 4 per cent to 5 per cent this year. The inflation rate was 2.7 per cent in December.
"At the current level, the stance of monetary policy remains accommodative and is assessed to be appropriate given the developments in monetary and financial conditions," the central bank said on Wedesday.
"The Monetary Policy Committee will continue to carefully assess the external developments and their implications on the Malaysian economy."
While a new consumption tax of 6 per cent is set to start in April, price pressures may be limited as the government announced this month it will postpone tariff increases for electricity and gas to reduce the burden for businesses.