Malaysia Holds Rate as Prices Seen Moderating After Surge

  • Consumer prices rose at fastest pace since 2008 in March
  • Ringgit is Asia’s best performer this quarter against USD

Malaysia left its benchmark interest rate unchanged as policy makers judged consumer price gains will moderate and as a stronger ringgit reduced the need to guard against capital outflows.

Bank Negara Malaysia kept its key rate at 3 percent, it said in a statement in Kuala Lumpur on Friday. The decision was predicted by all 22 economists in a Bloomberg survey.

Malaysia joins the Philippines in holding their firepower even as the threat of inflation grows in Southeast Asia. Bank Negara has said inflation will moderate after being relatively high in the first half of this year, while the pressure to add stimulus is subsiding as a recovery in exports boosts the economy.

“The increase in inflation reflected mainly the pass-through impact of higher global oil prices and temporary supply disruptions that led to higher food prices,” the central bank said in the statement. “The cost-push inflation is not expected to have a significant impact on the broader price trends given the stable domestic demand conditions.”

The growth momentum in the Malaysian economy since the second half of 2016 is expected to strengthen in the first quarter and to sustain for the rest of this year, the central bank said. This will be driven by domestic demand and stronger exports, Bank Negara said.

While risks to global growth remain, the central bank sees a more synchronized expansion across advanced and emerging economies, saying that indicators suggest that the global economic outlook will continue to improve.

“The central bank does sound like it’s quite comfortable keeping its current stance,” said Edward Lee, regional head of research at Standard Chartered Plc in Singapore. “If anything I do detect a seemingly more confident read on the global economy, but I guess at this point it’s still perhaps not strong enough in the sense to change their monetary policy outlook.”

The ringgit is among the best performing Asian currencies this quarter, rising about 1.8 percent against the U.S. dollar. Inflation was 5.1 percent in March, the fastest pace since 2008, as higher oil prices pushed up transport costs.

The ringgit has continued to stabilize while banking system liquidity remains sufficient, the central bank said. The monetary policy stance is accommodative and supportive of economic activity, it said.

The central bank in March forecast inflation to average 3 percent to 4 percent in 2017, up from 2.1 percent last year. Economic growth may quicken to as high as 4.8 percent, from 4.2 percent in 2016, it said.

— With assistance by Michael J Munoz

    Before it's here, it's on the Bloomberg Terminal.