(Sept 10): Malaysia’s resilient economy and contained price pressures should allow it to keep interest rates unchanged for the rest of the year, even as global central banks pivot towards easing, according to Bank Negara Malaysia’s (BNM) deputy governor.

Malaysia’s economy is on track to grow around 5% in 2024, while inflation won’t exceed 3%, Adnan Zaylani Mohamad Zahid said in a Bloomberg Television interview with Rosalind Mathieson. That puts it within the official forecasts laid out by the central bank earlier this year. 

“There’s no real compelling reason or any pressure on interest rates to move in either direction at this stage, though we have to be open to consider the risks going forward,” the deputy governor said in London.

The neutral stance sets Malaysia apart from its Southeast Asian peers, as the US Federal Reserve prepares to cut interest rates. BNM last adjusted its overnight policy rate (OPR) in May 2023, capping a year-long tightening cycle that saw it raising rates by a total 125 basis points to 3%. Elsewhere in the region, the Philippines reduced borrowing costs from a 17-year high last month, while Indonesia and Thailand have signalled openness to loosen monetary settings.

Malaysia’s rate path next year is less clear, with “still a lot of factors that could come into play”, particularly on inflation, according to Adnan. The central bank is on the lookout for domestic policy changes that could have an impact on the nation’s growth and inflation outlook, he said.

BNM has reason to stay cautious about prematurely easing monetary policy. Price pressures risk flaring up if Prime Minister Datuk Seri Anwar Ibrahim proceeds with an earlier pledge to end blanket subsidies for the country’s most widely used RON95, a move that is key to bolstering government finances. Anwar, who doubles as the finance minister, has yet to commit to a timeline for the move, with analysts increasingly expecting it to be delayed to end-2024 at the earliest.

Regardless of what measures it takes, the government is expected to meet its fiscal deficit target of 4.3% of gross domestic product this year, and possibly around 3% to 3.5% in 2025, said Adnan. 

It’s a commitment that the central bank takes comfort in as it would help to strengthen Malaysia’s economic fundamentals, he said. And the ringgit’s level should reflect that, he added.

The currency has recovered from a 26-year low against the dollar reached in February, emerging as the top gainer across developing markets this year. This is in part due to coordinated measures by the government and central bank to encourage corporates to repatriate their overseas income - something they will continue to do, even though the “ringgit has already regained its footing and recovered quite well”, said Adnan.

On the external front, Malaysia is set to weather any slowdown in China - its largest trading partner - or the risk of a global trade war, thanks to the Southeast Asian nation’s diverse economy, Adnan said. Domestic factors have also helped to bolster growth, he said.

The deputy governor is in London to attend a forum on Tuesday organised by the Malaysia International Islamic Financial Centre Leadership Council to promote the growth of Islamic finance in the world’s largest sukuk market. 

https://www.theedgemarkets.com/node/726126