Malaysia’s central bank to keep rates at 3.0% until at least 2026: Reuters poll By Reuters

By Pranoy Krishna

BENGALURU (Reuters) – Bank Negara Malaysia (BNM) will leave its key interest rate unchanged on Thursday and keep it there until at least 2025 as growth remains robust and inflation remains under control, according to a Reuters poll of economists.

While the BNM has managed to keep inflation under control, currently at 2.0%, the Malaysian ringgit has gone from being one of the worst performers in Asia to one of the strongest in recent weeks.

That suggests the central bank will be in no rush to cut rates anytime soon to avoid weakening the currency and importing inflation.

All 30 economists from August 27-Sept. 2 The Reuters poll predicted that the BNM would leave its overnight policy rate at 3.00% on September 5.

A median of a smaller sample showed rates would remain at current levels at least through 2026, an unchanged view from earlier in the year.

These forecasts were in contrast to major central banks, which were expected to cut rates at least once in 2024.

“There is no reason for the NBM to change the policy rate at this time … as growth is at the higher end of expectations and inflation has been surprisingly benign,” said Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank.

Malaysia’s gross domestic product (GDP) grew 5.9 percent in the last quarter, the fastest pace in 18 months, driven by strong household spending, exports and investment.

Inflation is expected to rise in the second half of 2024 amid uncertainties emanating from a recent policy to cut diesel subsidies, suggesting an interest rate cut from the central bank is unlikely in the coming months.

“There is still uncertainty over the timing of the further rationalization of fuel subsidies and the bank is probably keeping an eye on the second-round effects from the previous removal of diesel subsidy, so a cut would seem premature,” said Moorthy Krshnan, senior economist in Asia. at Pantheon Macroeconomics.

The central bank said in a statement that inflation will continue to remain manageable, even if it rises following the cut in diesel subsidies in June.

The Malaysian ringgit has appreciated about 6 percent this year as heightened expectations that the Federal Reserve will cut interest rates as early as this month weakened the US dollar.

This suggests that a rate cut from the central bank is now unwarranted and would likely be inflationary.

“The more significant driver for the ringgit was a weaker dollar story as US growth concerns rose. With the Fed poised to cut, the narrowing interest rate differential should be positive for the ringgit,” it added Krishnan.