Bank Negara Malaysia keeps key interest rate unchanged, likely to hike in September

Bank Negara Malaysia kept its key policy rate on hold at 3.25 percent today. The policy statement repeated a positive outlook on global growth and trade.

The policy statement was especially significant to understand the central bank’s view on inflation given that oil prices are lingering around USD 70/bbl. BNM maintains that inflation might average lower than last year in 2018. But the movement in headline inflation would be governed by global oil prices. The strength of the MYR relative to 2018 would continue to ease import prices. Core inflation is expected to stay moderate, noted ANZ in a research report.

The policy statement continued to be positive on global growth and trade prospects. The central bank also reaffirmed that favorable income and labor market conditions and the implementation of ongoing infrastructure and capacity growth projects would continue to support domestic demand.

“Given inflation at 1.8 percent y/y for Q1 2018, we are comfortable with our full year 2018 headline inflation forecast of 2.7 percent”, stated ANZ.

BNM is expected to normalize monetary policy at a gradual rate. According to ANZ, the central bank is expected to hike rates by 25 basis points in September, taking the year end policy rate to 3.5 percent. However, it is conceivable that the central bank might delay it to after the 2019 national budget is released. This might permit it to assess the effect of any changes in fiscal policy of the incoming administration.

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