Malaysia keeps policy rate at 3%; inflation stable; growth on track

By Marisa Wong

Morgantown, W.Va., Nov. 23 – Bank Negara Malaysia’s monetary policy committee decided to maintain the overnight policy rate at 3%.

The rate had been lowered to 3% from 3¼% in July, as previously reported.

Keeping the current policy rate is consistent with the stance to ensure that the domestic economy continues on a steady growth path amid stable inflation, supported by continued healthy financial intermediation in the economy, according to a bank statement on Wednesday.

The risk of destabilizing financial imbalances has been contained, the committee added.

Economic activity in major advanced economies has improved but remains moderate. Growth in Asia has been supported by domestic demand, with weakness persisting in the external sector. Looking ahead, the baseline estimate is for global growth to improve slightly in 2017, the committee said.

The bank stressed that there is uncertainty arising from risks of protectionism and financial market volatility. Heightened financial market volatility in recent weeks has had an adverse effect on various asset classes, exchange rates and yields across many emerging economies. Global financial market conditions are likely to be susceptible to market developments, as well as policy.

The bank said the Malaysian economy continued to expand in the third quarter, driven mainly by private sector activity with some support from net exports. Going forward, private sector activity will be the key driver of growth.

Private consumption is expected to be sustained by continued wage and employment growth, with added support from government measures to increase disposable income.

On the external front, exports are expected to expand but will be constrained by soft demand from Malaysia’s key trading partners, the committee said.

Overall, the domestic economy remains on track to expand as projected in 2016 and 2017, the bank said.

Headline inflation for 2016 is expected to be at the lower end of the projected range of 2% to 2.5%. Inflation is expected to remain relatively stable in 2017 with low global energy and commodity prices and generally subdued global inflation, according to the statement.

The bank pointed out that ringgit, along with most emerging market currencies, has experienced sharp adjustments and significant volatility due to continuing uncertainties in global economic and policy environment and geopolitical developments.

These factors could result in periods of volatility in the regional financial and foreign exchange markets. As a result, the bank will continue to provide liquidity to ensure an “orderly functioning” of Malaysia’s foreign exchange market.

© 2015 Prospect News.
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