- GDP expanded at the slowest pace since 2009 in first quarter
- Central bank has kept benchmark rate unchanged since 2014
Malaysia’s central bank held interest rates steady at Governor Muhammad Ibrahim’s first policy meeting as chief, refraining from immediately adding stimulus to an economy that could need it in coming quarters.
Bank Negara Malaysia kept the overnight policy rate at 3.25 percent for an 11th meeting, it said in a statement in Kuala Lumpur Thursday. The decision was predicted by all but one of 21 economists surveyed by Bloomberg News.
With an economy that’s forecast to expand at the slowest pace in seven years, and loan growth rates easing to levels not seen since at least 2008, the case is starting to build in Malaysia for an easing in policy. The collapse in oil prices has hurt government finances over the past two years, exports and private investment have faltered, while consumers and businesses are still contending with rising costs.
"Domestic fundamentals are gradually tipping towards the need for a more accommodative monetary policy," Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the decision. "They have the room to cut, if they want" and there’s still time for them to assess the situation, he said.
The ringgit fell 0.8 percent to 4.0830 a dollar in Kuala Lumpur Thursday. The Malaysian currency has weakened about 4.5 percent against the greenback this quarter, after a 10.1 percent gain in the first three months of the year.
The implied policy yield curve indicates expectations of an easing by policy makers in the next year, while six of 25 economists surveyed by Bloomberg expect a rate cut next quarter. At the current level of the overnight policy rate, the stance of monetary policy is accommodative and supportive of economic activity, the central bank said on Thursday.
"The Monetary Policy Committee recognises that there are downside risks in the global economic and financial environment and is closely monitoring and assessing their implications on domestic price stability and growth," it said. "This is to ensure that the monetary policy stance is consistent with sustainable growth of the Malaysian economy."
Malaysia’s external sector will continue to be constrained by the weak global environment, the central bank said. It expects economic activity to improve with domestic demand remaining the key driver of growth. Inflation is expected to trend lower for the rest of the year after averaging 3.4 percent in the first quarter, it said.
Muhammad began a five-year term this month after replacing Zeti Akhtar Aziz. who was governor for 16 years. He has pledged monetary and financial stability to a nation that’s endured more than a year of market volatility and political tensions.