Malaysia Leaves Key Rate Unchanged at Zeti's Last Policy Meeting

  • Economy forecast to grow at slower pace, inflation to quicken
  • Zeti's term ends in April, government hasn't named successor

Malaysia left interest rates unchanged as accelerating inflation reduced scope for a cut in borrowing costs at Governor Zeti Akhtar Aziz’s last scheduled policy-setting meeting.

Bank Negara Malaysia kept the overnight policy rate at 3.25 percent for a 10th meeting, it said in a statement in Kuala Lumpur Wednesday. The decision was predicted by all 20 economists surveyed by Bloomberg News. The central bank also kept the statutory reserve ratio steady after a 50-basis-point cut at the January meeting.

Malaysia’s growth is slowing as rising costs eat into disposable incomes and erode consumer confidence, and companies hold back on investments. Inflation in January accelerated to the fastest pace since 2014, while a slump in crude has curbed government revenues and prompted Prime Minister Najib Razak to trim the growth forecast for 2016.

“It’s not a surprising stance given that inflation has stayed above the policy rate,” Wellian Wiranto, an economist in Singapore at Oversea-Chinese Banking Corp., said before the decision. “It will still take a while before inflation starts to turn south, and giving them the space to cut rates that way.”

The ringgit fell 0.3 percent to 4.1302 a dollar in Kuala Lumpur Wednesday. The Malaysian currency has strengthened about 4 percent against the greenback this year, rebounding from a 19 percent decline in 2015.

Inflation will average between 2.5 percent and 3.5 percent in 2016, Zeti said in January, after price gains of 2.1 percent last year. Gross domestic product is now projected by the government to expand as much as 4.5 percent this year, after growing 5 percent in 2015.

Zeti is one of Asia’s longest-serving central bank heads, having taken office in 2000, two years after her stint as acting governor in 1998 amid a then-controversial move to peg the ringgit to deal with capital outflows.

Najib has given no indication who he will pick to replace Zeti when her term ends in April. A governance committee under the auspices of Bank Negara Malaysia has the responsibility of vetting internal and external candidates before Najib’s government picks one to be endorsed by the king.

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