Bank Negara seen holding policy rate at 3.25%

KUALA LUMPUR: Malaysia’s central bank will likely keep its benchmark overnight interest rate unchanged at 3.25% at a policy review tomorrow, a Reuters poll showed.

All 11 economists surveyed foresaw Bank Negara Malaysia (BNM) keeping the policy rate on hold. The central bank’s last move was a year ago, when it raised the rate by 25 basis points.

Steady domestic growth, supported by strong consumer demand and sustained investments in automation, would likely keep the central bank from changing its key rate, according to a note by Standard Chartered.

“Our base case is that BNM will be comfortable remaining on hold if GDP growth is at 4.5-5%, as we expect,“ the bank said in its Friday note.

In November, BNM said growth “has bottomed and on upside going forward”, forecasting economic expansion of 4.8% in 2018 and 4.9% the following year.

Any increase in downside risks posed by the ongoing US-China trade war could persuade the central bank to ease monetary policy, said Julia Goh, a Malaysian-based analyst with UOB Bank.

“What we’re watching for is how much spillover this will have on our trade data, and how it will impact the domestic economy in terms of the labour market and consumption growth,“ Goh said.

“If the central bank emphasises more on downside risks from rising external headwinds and shows any inclination of dovishness, then the possibility of a cut rises.”

Malaysia last cut its policy rate in July 2016, when it was lowered to 3%.

Domestically, the government’s “marginally expansionary” fiscal policy, along with subdued inflation, should stave off a policy change this year, HSBC said in a research note on Friday.

Malaysia laid out an expanded budget for 2019, as Prime Minister Tun Dr Mahathir Mohamad’s government looked to boost revenue in a slowing economy while trying to clear large debts left by the previous government.

“We believe BNM’s next move is likely to be a cut in 2020 when fiscal policy turns more contractionary and as growth slows towards 4%,“ HSBC said.

Inflation has been subdued since Mahathir’s government removed an unpopular consumption tax in June and reinstated a narrower sales and service tax three months later.

Full-year 2018 inflation is seen coming in at 1.5-2.5%, before rising to a range of 2.5-3.5% in 2019.

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