Malaysia central bank likely to keep rates untouched until at least 2026

BANK Negara Malaysia (BNM) will leave its overnight policy rate (OPR) unchanged at 3.00 per cent on Wednesday (Jan 24) and hold it there until at least 2026 as price pressures are expected to increase and growth remains steady, a Reuters poll of economists showed.

That outlook was despite inflation easing to 1.5 per cent in November – its lowest since March 2021 – and remaining far below the government’s estimate of 3 per cent to 4 per cent for 2023, partly due to BNM hiking rates by a cumulative 125 basis points between May 2022 and May 2023.

With the Malaysian ringgit up nearly 3 per cent against the US dollar so far in 2024 as markets expect the US Federal Reserve to cut rates aggressively this year, the urgency for policy easing by the BNM will be limited in the near term.

All 28 economists in the Jan 12-18 Reuters poll predicted Malaysia’s central bank would keep its key interest rate at 3.00 per cent on Jan 24 for the fourth consecutive meeting.

Survey medians showed the central bank would keep the rate untouched until at least 2026 and only four of 26 economists expected at least one cut this year.

“The BNM sees policy as already slightly accommodative. It would likely take a material growth slowdown to nudge the bank into making policy more supportive,” said Alex Holmes, lead economist, Oxford Economics.

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The economy which expanded 3.3 per cent annually in Q3, 2023 was expected to grow 4.5 per cent and 4.6 per cent this year and next, respectively, higher than 4.1 per cent last year.

Meanwhile, inflation was forecast to spike again in the coming quarters and average 2.5 per cent in 2024 and 2.4 per cent in 2025.

“Inflation is likely to creep up due to recently announced government measures, such as a 2 per cent services tax hike, removal of subsidies for selected food and energy items...and a 5-10 per cent luxury goods tax,” said Vincent Loo, senior economist, KAF Research.

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“The collective impact of these measures is likely to drive inflation higher this year, thereby constraining the potential for policy easing by BNM.” REUTERS