Recent economic predictions suggest that Bank Negara Malaysia (BNM) will maintain its key interest rate throughout 2025. Despite robust growth and controlled inflation, all 30 economists surveyed in a recent Reuters poll unanimously agreed that the overnight policy rate will remain at 3.00% on September 5. Additionally, a median prediction from a smaller sample indicated that rates would stay at this level until at least 2026. This long-term outlook is quite different from projections for major central banks, where rate cuts are anticipated as early as 2024.
Malaysia’s economy experienced a 5.9% GDP growth in the last quarter, marking the fastest pace in 18 months. This growth was primarily driven by strong household spending, exports, and investments. Moreover, inflation is currently at a manageable 2.0%. However, uncertainties stemming from recent policies, such as the reduction of diesel subsidies, could lead to an uptick in inflation in the second half of 2024. Despite these factors, there is little indication that a rate cut is on the horizon.
The Malaysian ringgit has seen a significant appreciation of about 6% this year. This increase in value can be attributed to the weakening of the U.S. dollar, as expectations of interest rate cuts by the Federal Reserve have grown. In this context, a rate cut by Bank Negara Malaysia would likely be unnecessary and could potentially contribute to inflation. Analysts believe that the current strength of the ringgit is closely tied to the performance of the U.S. dollar, making any immediate rate adjustments unwarranted.
Lavanya Venkateswaran, a senior ASEAN economist at OCBC Bank, emphasized that there is currently no compelling reason for BNM to alter its policy rate. With growth exceeding expectations and inflation remaining stable, any changes in the interest rate could have unintended consequences. Moorthy Krshnan, a senior Asia economist at Pantheon Macroeconomics, further highlighted the need for caution, especially in light of ongoing fuel subsidy rationalization efforts. The central bank’s decision to maintain its current stance reflects a balancing act between economic indicators and potential risks.
The outlook for interest rates in Malaysia remains steady, with Bank Negara Malaysia poised to keep its key rate unchanged for the foreseeable future. While economic conditions are favorable, there are uncertainties that could impact inflation and currency valuation. By maintaining a neutral stance on monetary policy, BNM aims to support continued growth while guarding against potential risks. The future trajectory of interest rates will likely be shaped by a combination of domestic economic trends and global market dynamics.
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