Malaysia Decision Guide: Early Move Eases Pressure to Hike AgainBy and
Economists predict central bank will hold rate at 3.25%
Steady outlook helping lure foreign funds into bonds, stocks
Moving early has its advantages.
As one of the first central banks in Asia to raise interest rates this year, Bank Negara Malaysia is facing little pressure to tighten again as inflows into the nation’s bonds and stocks help to boost the currency and improve the inflation outlook.
The central bank is forecast to hold its benchmark rate at 3.25 percent on Wednesday, according to all 17 economists surveyed by Bloomberg. The move in January, which was communicated well ahead of time, gives the bank ample policy room for the rest of the year, with most analysts predicting no change.
“The central bank is not behind the curve, inflation seems to be under control and growth remains relatively high,” said Koji Fukaya, chief executive officer at FPG Securities Co. in Tokyo. “There’s no reason to be negative on the Malaysian assets and the ringgit looks relatively stronger in Asia. The yield level is not bad either.”
Malaysia’s sweet spot contrasts with the Philippines where the central bank has been reluctant to raise interest rates even though the economy is booming and inflation risks are rising. Malaysia’s ringgit is ranked among Asia’s best performing currencies this year, while the peso is languishing at the bottom.
Foreign investors are piling into Malaysian assets with $1.6 billion of net inflows into stocks and bonds this year, according to the latest available data. Inflation in Malaysia eased to 2.7 percent in January, the slowest pace since 2016, while the economy expanded 5.9 percent last year.
The rate increase in January shouldn’t be construed as a tightening of monetary policy, Governor Muhammad Ibrahim said last month, as reported by the Edge. The world is now "in a phase of normalization" of interest rates and at 3.25 percent, the overnight policy rate is still accommodative and Malaysia is not on a tightening trend, he said.
“We do not see an immediate pressure, external or domestic, on the BNM to increase borrowing rates," said Jennifer Kusuma, a Singapore-based senior Asia rates strategist at Australia & New Zealand Banking Group Ltd.
“The growth momentum is intact and inflation is high relative to history, but the trend is one of moderation,” she said. “Imbalances in the system, characterized by deteriorating external balances and a high household debt, have also been reduced versus a year ago.”
— With assistance by Michael J Munoz