KUALA LUMPUR (July 11): Bank Negara Malaysia’s (BNM) monetary policy decision on Thursday reinforces a wider view that the central bank will probably keep the benchmark interest rate unchanged until year end, economists said.

Central banks in Asia, including Malaysia, are bracing for protracted elevated interest rates in developed economies struggling to contain inflation. The US Federal Reserve is also expected to cut rates fewer times and at later part of the year, adding to policymakers’ caution.

Malaysia’s economy, however, expanded strongly in the first quarter, “which means that there is little need for immediate support”, Capital Economics said in a note. BNM also sounded “upbeat” in its latest statement, it said.

Earlier on Thursday, BNM maintained the overnight policy rate at 3% amid resilient economic growth and manageable inflation. The decision was predicted in a Bloomberg survey of economists that unanimously called for the central bank to stand pat in the fourth of six reviews scheduled for this year.

BNM has kept the policy rate unchanged for more than a year now since it was last raised in May 2023 by 25 basis points. The latest economic indicators suggest that the central bank would be in no hurry to raise or cut rates.

There is upside potential to inflation, depending on impact from the upcoming petrol subsidy rationalisation to the broader prices, Australia & New Zealand Banking Group flagged.

Still, any increase in inflation rate owing to subsidy rationalisation will be viewed as a “one-time adjustment that should not warrant any policy rate action”, the bank said.

The government has floated retail diesel prices in Peninsular Malaysia. The current price per litre stands at RM3.35, up from RM2.15 fixed previously. Subsidy rationalisation for RON95, the most widely used petrol variant currently capped at RM2.05 per litre, is expected to follow suit.

BNM itself acknowledged the upside risk to inflation from “the extent of spillover effects of further domestic policy measures on subsidies and price controls to broader price trends”, on top of global commodity prices and financial market developments.

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