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Malaysian central bank maintains policy rate

​KUALA LUMPUR
2018-09-06 09:09

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The Malaysian Central Bank, Bank Negara, on Wednesday left the benchmark policy interest rate unchanged at 3.25 percent, as it foresees the country's economy growth faces downside risks amid trade tension and inflation is expected to edge upwards.

The current monetary decision is consistent with the intended policy stance, central bank said in a statement after its fifth Monetary Policy Committee (MPC) meeting this year.

"The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation," it said.

The central bank said the private consumption, which was boosted by the tax holiday with the transition from Goods and Service Tax to Sales and Service Tax, will continue to be driven by steady wage and employment growth, while investment activity is projected to be underpinned by continued capacity expansion in key sectors, particularly in the export-oriented industries, the bank added.

However, the bank said public sector spending is expected to weigh on growth as the government re-prioritize its expenditure.

In the immediate term, Bank Negara expects economy faces downside risks stemming from heightened trade tensions, prolonged weakness in the mining and agriculture sectors and some domestic policy uncertainty.

"On balance, the Malaysian economy is expected to remain on a steady growth path," it said, adding headline inflation is expected to edge upwards taking into consideration the impact of policy measures on domestic cost factors going into 2019.

The impact of the changes in tax regime on headline inflation will be transitory and lapse towards the end of 2019, the central bank said.

"In line with regional economies, the domestic financial markets continue to experience non-resident portfolio outflows due to ongoing global developments," it said.

The central bank's move is in line with expectations, and economist expects the bank to remain neutral and on hold for the rest of the year.

"Amid balanced risk, we maintain our baseline view of a single rate hike in 2018. We expect domestic economy will continue to expand at a moderating pace in 2018," said MIDF Research in investor note.

Future developments in both internal and external fronts will determine the upcoming outlook of Malaysia's monetary policy, the research house said.
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