Bank Negara Malaysia to continue with prudent monetary policy stance under new leadership

The Malaysian central bank, BNM, has appointed a new governor, Muhammad Ibrahim. This is seen as positive development and considered as a smooth transition of leadership, noted DBS Bank. Previous governor Zeti is quite respected in the financial markets. Under Zeti’s leadership, the monetary policy has been cautious and balanced. The monetary policy of Malaysia is likely to continue with the credibility under Governor Muhammad Ibrahim, especially with his huge amount of experience.

On policy front, it is likely to be more dovish, said DBS Bank. Malaysia posted below-expected inflation. It rose 2.6% y/y in March, a sharp drop from 4.2% recorded in February. With below-expected inflation, the overall inflation reading for the entire 2016 might come in short of the current forecast of 2.5%, according to DBS Bank. Moreover, if inflation remains below expectation, it might force the central bank to lower the Overnight Policy Rate. In February, the central bank had actually cut its statutory reserve requirement ratio to 3.5% from 4%.

The current transition of leadership in the central bank is holding it from moving to an easing stance. With the smooth transition of leadership, there is a higher probability of monetary easing, said DBS Bank.