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Malaysia’s central bank, Bank Negara Malaysia (BNM), is set to keep its overnight policy rate (OPR) at 3.00% on January 24th, according to a recent Reuters poll of economists. This decision reflects a cautious approach as the bank balances rising price pressures with a steady economic outlook.
The BNM’s decision comes despite easing inflation, which dipped to 1.5% in November 2023, its lowest level since March 2021. This figure falls below the government’s projected range of 3%-4% for 2023 and can be partly attributed to the bank’s previous rate hikes. BNM proactively raised the OPR by a cumulative 125 basis points between May 2022 and May 2023 to curb inflationary pressures.
Further dampening the need for near-term policy easing is the Malaysian ringgit’s recent strength against the U.S. dollar. The currency has gained nearly 3% so far in 2024, buoyed by market expectations of aggressive U.S. Federal Reserve rate cuts later this year. This relative stability minimizes the immediate pressure on the BNM to intervene through monetary policy adjustments.
The Reuters poll reveals a strong consensus among economists, with the median survey response anticipating an OPR freeze until at least 2026. Only four out of 26 economists surveyed foresee at least one rate cut in 2024.
While inflation remains a concern, the Malaysian economy continues to demonstrate resilience. Gross domestic product (GDP) expanded by 3.3% year-on-year in the third quarter of 2023, and economists predict positive growth trajectories of 4.5% and 4.6% for 2024 and 2025, respectively, surpassing the 4.1% growth achieved in 2023.
However, uncertainties linger on the horizon. Global recessionary concerns, heightened by the ongoing war in Ukraine, could dampen external demand and impact Malaysia’s export-oriented economy. Domestically, rising global food and energy prices pose potential inflationary risks, requiring the BNM to navigate a delicate balancing act between supporting economic growth and controlling inflation.
The BNM’s upcoming monetary policy decision on January 24th will be closely watched by investors, businesses, and policymakers alike. While maintaining the OPR at 3.00% appears likely, the central bank’s accompanying statement will be crucial in understanding its forward guidance and assessing potential adjustments in its stance toward inflation and growth throughout 2024 and beyond.