Malaysia’s central bank left its benchmark Overnight Policy Rate (OPR) at 3.25 percent, as widely expected following January’s hike, and said economic growth is expected to remain strong this year while inflation on average should be lower than last year.
In January Bank Negara Malaysia’s (BNM) raised its rate by 25 basis points in the first move to tighten since July 2014. However, BNM also said its policy stance remained accommodative.
Today BNM struck a neutral tone in its outlook, saying the current rate was consistent with steady economic growth amid lower inflation.
Malaysia’s headline inflation rate eased to 2.7 percent in January from 3.5 percent in December and an average 2017 rate of 3.7 percent. Core inflation has been steady at 2.2 percent from November through January.
BNM expects a stronger exchange rate for the ringgit to mitigate higher import costs and thus inflation from higher energy and commodity prices. However, headline inflation will depend on global oil prices, “which remain highly uncertain.”
Malaysia’s economy is expected to be supported by continued global growth and while risks to the global outlook remain balanced, the central bank noted the recent increase in “trade tensions” and changes in financial markets that “indicated that volatility may emerge.”
In addition external demand, Malaysia’s economy should be supported by domestic demand, boosted by capital investment in manufacturing and services and new and ongoing infrastructure projects.
Malaysia’s economy is estimated to have expanded by 5.5 to 6.0 percent in 2017 and both the government and International Monetary Fund project growth this year of 5.0 to 5.5 percent.
Malaysia’s ringgit has been appreciating steadily since early 2017 although it eased in the first week of February. Today the ringgit was trading at 3.90 to the U.S. dollar, up 3.6 percent this year.
Bank Negara Malaysia issued the following statement: