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Malaysia's central bank holds key rate, sees growth picking up
May 12, 2017 / 8:59 AM / 4 months ago

Malaysia's central bank holds key rate, sees growth picking up

A general view of the Bank Negara Malaysia in Kuala Lumpur, Malaysia, March 8, 2016. REUTERS/Olivia Harris

KUALA LUMPUR (Reuters) - Malaysia’s central bank left its benchmark interest rate unchanged at 3 percent on Friday as expected, maintaining an accommodative stance as policy makers take comfort from quickening growth this year after a difficult 2016.

“For Malaysia, the growth momentum since the second half of 2016 is expected to strengthen in the first quarter of 2017, and to be sustained for the rest of the year,” the central bank said in a statement.

All 10 economists polled by Reuters had correctly predicted Bank Negara Malaysia (BNM) would hold its overnight rate MYINTR=ECI.

A slim minority expected the bank might have to raise rates later in the year to keep inflation in check, and due to potential capital-outflow pressure from the U.S. Federal Reserve’s tightenings.

“BNM had an easy decision today: inflation is high but likely peaked and the economy is recovering, although far from roaring with a vengeance,” said Trinh Nguyen, Hong Kong-based senior economist for investment bank Natixis.

“The central bank is going to keep this easy monetary policy stance in H1 2017 to support the fragile economic upturn.”

BNM said growth will mainly be driven by domestic demand amid continued wage and employment gains, and the implementation of new and on-going investment projects.

Malaysia’s economy grew 4.2 percent in 2016, its slowest pace since contracting in 2009, on poor global demand for oil and gas and commodity exports.

Southeast Asia’s third-largest economy, however, ended a year of tepid activity on a high as resurgent exports boosted growth by 4.5 percent in the fourth quarter.

BNM said the ringgit currency MYR= - which hit a near 19-year low of 4.4980 to the dollar on Jan. 4 - has continued to stabilize.

The ringgit was up at 4.3460 in mid-afternoon trade on Friday.

HIGH INFLATION

Inflation hit an eight-year high of 5.1 percent in March,

BNM, which said headline inflation accelerated to 4.3 percent in the first quarter, doesn’t expect price pressures to hurt growth. It is maintaining its full year 2017 growth forecast of 4.3-4.8 percent.

“The higher headline inflation is expected to moderate in the second half of the year,” the central bank said.

Controlling inflation and rising living costs is a challenge to Prime Minister Najib Razak, as he prepares to call early polls, possibly this year.

Echoing this week’s warning by the International Monetary Fund, BNM said global growth faces risks from threats such as protectionism, geopolitical developments, and commodity price volatility.

“These risks could also reignite financial market volatility,” the central bank said.

Reporting by Praveen Menon; Editing by Shri Navaratnam

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