Malaysia Holds Key Rate Unchanged Again

Malaysia’s central bank left is key interest rate unchanged in November as it expects a steady growth path and rising inflation going into next year.

The Monetary Policy Committee decided to maintain the Overnight Policy Rate at 3.25 percent, the Bank Negara Malaysia said. The decision was in line with economists expectations.

The previous change in the key interest rate was a quarter-point hike in January.

“At the current level of the OPR, the degree of monetary accommodativeness is consistent with the intended policy stance,” the bank said.

The domestic economy “continues to face downside risks stemming from any further escalation in trade tensions and prolonged weakness in the mining and agriculture sectors,” the bank noted.

“Nevertheless, on balance, the Malaysian economy is expected to remain on a steady growth path in 2018 and 2019.”

Headline inflation is projected to increase next year, mainly due to higher projected global oil prices and the floating of domestic fuel prices, the bank said.

The impact of the consumption tax policy is expected to prop up inflation next year, but its effect is expected to ease towards the end of the year.

The central bank expects core inflation to remain contained in the absence of strong demand pressures.

Capital Economics economist Alex Holmes expect Malaysia’s interest rates to remain on hold despite the weakness of the economy and the slump in inflation. That is in contrast to the market consensus that the bank will resume its policy tightening next year.

“The main reason is the weakness of the ringgit, which is down by nearly 8 percent against the US dollar since the start of the year,” Holmes said. “Overall, we expect rates to remain unchanged until at least end-2019.”

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