KUALA LUMPUR: Malaysia has made a right decision to keep its benchmark interest rate steady, said economists, stressing that a stable monetary stance that supports economic growth is good for Malaysia amid global pressures.
Bank Negara Malaysia on Thursday kept its overnight policy rate (OPR) unchanged at 3.00 per cent as its monetary stance was supportive to the economy and it looks to other measures to shore up the weakened ringgit amid modest inflation.
Economists contacted by Business Times expect the central bank to hold the OPR for rest of the year.
Malaysia University of Science and Technology economist Professor Geoffrey Williams said the unchanged rate was fully consistent with the central bank's mandate and current economic conditions.
He said headline inflation has slowed considerably toward 1.5 per cent since last November and the economy is growing, albeit at a slower rate than hoped, but the outlook for 2024 is positive.
"The exchange rate is undervalued but intervention by Bank Negara has stabilised the ringgit which appreciated by 2.0 per cent since the intervention started. So there are no reasons to change the OPR now.
"It is much better to have a stable monetary stance which supports growth given global pressures which are still uncertain. We expect no changes in the OPR for the rest of the year unless there is a serious shock which by definition we cannot anticipate," he told Business Times.
Bank Muamalat Malaysia Bhd chief economist and head of social finance Dr Mohd Afzanizam Abdul Rashid said the central bank's narratives in the accompanying statement suggested that the economy is expected to grow between four to five per cent, which is higher than 2023.
"We have seen tourist arrivals have gone up by 100 per cent to 20.1 million in 2023. However, this still falls short from the pre-Covid level of 26.1 million in 2019 which means there is an upside potential for tourist arrivals to rise further this year especially when the ringgit is very attractive from the tourist's point of view.
"All in all, the (Bank Negara's) Monetary Policy Committee members are of the view that the state of monetary policy is appropriate and supportive to growth. As such, we shall expect OPR to remain steady in the near future," he added.
Bank Negara had only one rate hike of 25 basis points last year in May.
In a statement after its MPC meeting on Thursday, the central bank said growth for Malaysia is expected to improve in 2024, driven by the recovery in exports and resilient domestic expenditure.
"Export growth is turning positive after contracting since March 2023 and will continue to be supported by stronger global trade. Tourist arrivals and spending are poised to rise further. Continued employment and wage growth remain supportive of household spending," it added.
The ongoing progress of multi-year projects in both the private and public sectors are poised to spur investment activities.
Other factors to support investments are the implementation of catalytic initiatives under the national master plans, as well as the higher realisation of investments.
The growth outlook is, however, subject to downside risks stemming from weaker-than-expected external demand and larger declines in commodity production.
Meanwhile, Bank NEgara said headline and core inflation stood at 1.5 per cent and 1.8 per cent respectively in January 2024, trending in line with expectations.
Inflation in 2024 is expected to remain moderate, broadly reflecting stable demand conditions and contained cost pressures.
"However, this outlook continues to be highly dependent on the implementation of domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.
On the ringgit, Bank Negara said the local currency is currently undervalued, given Malaysia's economic fundamentals and growth prospects.
"The government and Bank Negara Malaysia are taking coordinated actions to encourage repatriation and conversion of foreign investment income by government-linked companies and government-linked investment companies.
Looking ahead, Bank Negara said growth in regional economies is expected to improve, while
China's growth would likely remain modest given continued weakness in the property market.
Global trade is expected to strengthen as the global tech upcycle gains momentum.
Nonetheless, the global monetary policy stance is likely to remain tight in the near term, as inflation remains above average.