KUALA LUMPUR (Sept 5): Malaysia’s central bank on Thursday left the benchmark interest rate unchanged as widely expected, drawing comfort from sustained economic expansion and benign inflation.

The overnight policy rate (OPR) was maintained at 3%, following the Monetary Policy Committee’s two-day meeting, Bank Negara Malaysia (BNM) said in a statement. A Bloomberg survey of economists unanimously called for the central bank to stand pat in the fourth of six reviews scheduled for 2024.

“At the current OPR level, the monetary policy stance remains supportive of the economy, and is consistent with the current assessment of inflation and growth prospects,” BNM said.

Malaysia’s economic growth accelerated faster than expected, expanding 5.9% year-on-year in the second quarter of 2024, thanks to stronger household spending, business investments and exports. On a seasonally adjusted basis, gross domestic product rose 2.9% quarter-on-quarter.

Malaysia’s economy may expand 4% to 5% this year, according to government forecasts. BNM has kept the OPR unchanged for more than one year now since it was last raised in May 2023 by 25 basis points.

“The latest indicators point towards sustained strength in economic activity driven by resilient domestic expenditure and higher export activity,” BNM said. “Going forward, exports are expected to be further lifted by the global tech upcycle”, as well as continued strength in non-electronics goods, it said.

Tourist spending is expected to continue to increase, while employment and wage growth as well as policy measures are still supportive of household spending, the central bank said. Investment activity would be sustained by ongoing multi-year projects in both the private and public sectors, BNM said.

Both headline and core inflation, meanwhile, averaged 1.8% in the first half of 2024, due to contained spillovers from the floating of diesel prices, amid mitigation and enforcement measures to minimise the cost impact on businesses.

For the year as a whole, average headline and core inflation are expected to remain within the earlier projected ranges, and are “unlikely to exceed 3%”, BNM said. Headline inflation is projected to average 2.0% to 3.5%, while core inflation will come in at 2.0% to 3.0% for the year.

Still, the inflation outlook is “highly” dependent on the implementation of further domestic policy measures, BNM said, flagging upside risk from the impact of subsidies and price control adjustments to broader prices, as well as global commodity prices and financial market developments.

On the ringgit, the central bank said Malaysia’s positive economic prospects, domestic structural reforms, and ongoing initiatives to encourage flows will continue to provide “enduring support” to the currency.