[KUALA LUMPUR] Malaysia’s central bank kept its benchmark interest rate unchanged at 3 per cent on Thursday (March 7), maintaining the key rate for a fifth consecutive meeting.

The decision was widely expected. All 31 economists in a recent Reuters poll had projected that the central bank would keep the overnight policy rate (OPR) unchanged at 3 per cent.

Bank Negara said in a statement that the decision was made in view of the global economy expanding – although at a moderate pace – and domestic demand continuing to support the Malaysian economy amid an improvement in trade activity.

“At the current OPR level, the monetary policy stance remains supportive of the economy, and is consistent with the current assessment of inflation and growth prospects,” said the central bank.

Borrowing costs were last adjusted in May 2023, when the OPR was raised by 25 basis points to the current level. Economists had said that they expected Bank Negara to keep rates steady until the end of the year, or even beyond that.

Although the ringgit’s weakness continues to be the market focus, economists and analysts do not expect the central bank to go down the path of using rate hikes to defend the currency.

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Winson Phoon, head of fixed income research at Maybank Securities, said a rate hike would trigger more knee-jerk reactions, and that its effectiveness was questionable, considering the very wide rate differentials between the US dollar and the ringgit.

Standard Chartered Bank economists Edward Lee and Jonathan Koh shared the same view, noting that the currency’s weakness was likely limiting Bank Negara’s room to cut rates to support growth.

Both said that, to address the weakness of the ringgit, Bank Negara had stepped up engagement with government-linked companies and investment companies to encourage them to repatriate foreign investment income, and to convert that income into ringgit consistently.

“This coordination is likely preferred over a tweak to monetary policy to address the currency weakness,” the economists said in a report.

The ringgit momentarily plunged to RM4.80 against the US dollar on Feb 21, its weakest level since the Asian financial crisis 26 years ago. Back in 1998, the Malaysian currency slipped to an all-time low of RM4.8850.

The currency regained its strength after Bank Negara governor Abdul Rasheed Ghaffour said the central bank and government were taking coordinated actions to encourage continuous inflows to the foreign exchange market.

As at Mar 7, the ringgit traded at RM4.69 against the greenback, around 1 per cent higher than the week before, but this was still nearly 3 per cent lower than the RM4.58 on Jan 1 this year.

In the statement on Thursday, Bank Negara reiterated that the currency was undervalued, given the country’s economic fundamentals and growth prospects.

The country’s economy grew by 3.7 per cent in 2023, missing the official projection of 4 per cent. The central bank remains optimistic that economic growth would improve this year, driven by a recovery in exports and resilient domestic expenditure.

It said: “Malaysia’s export growth turned positive in January, after having contracted since March last year, and will continue to be supported by stronger global trade as the tech upcycle gains momentum this year.”

The country’s year-on-year inflation growth for January stayed at 1.5 per cent for the third consecutive month – the lowest level since February 2021.

The central bank expects inflation to remain modest in 2024, but cautioned that the inflation outlook continues to be highly dependent on the implementation of the domestic policy on subsidies and price controls, as well as on global commodity prices and financial market developments.