Malaysia Holds Key Rate at All-Time Low, Sees Downside Risks
Malaysia kept its benchmark interest rate at a record low Thursday as a fresh surge in coronavirus infections threatens to further delay an economic recovery.
Bank Negara Malaysia held the overnight policy rate at 1.75% for a fifth straight meeting, a decision expected by all 21 economists in a Bloomberg survey.
“Latest indicators point to continued improvements in economic activity in the first quarter and into April,” the central bank said in a statement Thursday. “While the recent re-imposition of containment measures in select locations will affect economic activity in the short term, the impact will be less severe as almost all economic sectors are allowed to operate.”
Still, the statement noted that “the balance of risks to the growth outlook remains tilted to the downside,” due to uncertainty over the course of the pandemic and potential challenges for the country’s vaccine rollout.
The decision comes as Malaysia suspended a domestic travel bubble and tightened movement curbs in Kuala Lumpur and in Selangor, its richest state, to contain a surge in infections that has left some hospitals low on ICU beds. Daily cases last week topped 3,000 for the first time since February.
The ringgit was largely unchanged on the day at 4.1215 per dollar as of 4:38 p.m. Stocks erased earlier losses to trade little changed on the day.
Bank Negara Malaysia “spoke about how the current monetary policy stance remains appropriate, and how the virus curbs are less severe than before,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore. “From those alone, it does not look like a central bank that is laying the groundwork for any cut in the near term.”
Further containment measures could undo recent strides the economy has made. The April manufacturing Purchasing Managers Index hit a record high, while March exports registered the strongest year-on-year growth in almost four years. Manufacturing sales rose at their fastest pace in nearly four years in March, while an index of industrial production showed its strongest gains in March since July 2013.
What Bloomberg Economics Says...
“Downside risks from the pandemic keep the door open for more rate cuts. Our base case, though, remains that BNM will leave its policy rate unchanged this year. This assumes global demand continues to recover, supporting commodity prices and market sentiment. The distribution of Covid-19 vaccines, albeit slow, should help to steadily lower new virus cases, allowing Malaysia’s social distancing measures to be pared back.”
-- Tamara Mast Henderson, Asean economist
Consumer prices surged to an almost three-year high in March, driven partly by a low base effect from last year, when tight movement restrictions pushed the country into deflation. The central bank expects headline inflation to average 2.5%-4% this year.
“The fact that Bank Negara Malaysia (BNM) left its policy rate on hold at 1.75% today despite the worsening economic outlook means any further loosening is unlikely,” Alex Holmes, Asia economist at Capital Economics Ltd., wrote after the decision. “With the recovery set to be slow and fitful, we think BNM will leave interest rates at their current low until at least the end of 2022.”
©2021 Bloomberg L.P.