Malaysia's central bank keeps interest rate at record low

Kuala Lumpur

MALAYSIA kept its benchmark interest rate at a historic low on Thursday (Jan 20), maintaining support for an economy hit in recent weeks by floods and the fast-spreading omicron variant.

Bank Negara Malaysia held the overnight policy rate at 1.75 per cent at its first monetary policy meeting of the year, as predicted by all 25 economists in a Bloomberg survey. The central bank has held borrowing costs steady since July 2020.

"Growth is expected to gain further momentum in 2022. This will be driven by the expansion in global demand and higher private sector expenditure amid improvements in the labor market and continued policy support," BNM said.

"Risks to the growth outlook, however, remain tilted to the downside."

Malaysia expects the economy to expand 5.5 per cent-6.5 per cent this year, up from the 3 per cent-4 per cent growth it forecasts for 2021.

The year is off to a rocky start, however, as flash floods across several states will cost the economy up to RM 8 billion (S$2.6 billion) in lost production value and hundreds of omicron cases were identified.

Going forward, a speedy vaccine rollout should stave off blanket containment measures. More than 41 per cent of the adult population had received booster shots as of Wednesday, and Malaysia plans to soon expand its inoculation programme to children as young as five years old.

That has fuelled optimism for the central bank to raise rates by as much as 50 basis points this year. Within Asia, Malaysia "is likely to experience one of the stronger domestic demand recoveries," said Frederic Neumann, co-head of Asian economics and managing director at HSBC Holdings Plc. BLOOMBERG