KUALA LUMPUR: Malaysia has kept its benchmark interest rate unchanged, a move economists deems as right under the current conditions.
People are now having a period of price stability, amid some inflationary pressures from a weak ringgit and subsidy rationalisation, and any change in the rate will disrupt that, they said.
"Inflation has slowed considerably and the most recent headline inflation data is below historical averages. So we have a period of price stability now and changes in the OPR would disturb that," Malaysia University of Science and Technology economist Dr Geoffrey Williams told Business Times.
Bank Negara Malaysia today decided to maintain the Overnight Policy Rate (OPR) at 3.00 per cent as it expects growth will continue to be supported by domestic demand amid strong labour market conditions.
After its Monetary Policy Committee's (MPC) first meeting for 2024, the central bank said at the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.
The MPC had only one rate hike of 25 basis points last year in May.
Bank Negara added that the MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth.
"The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.
It added that there are signs of a recovery in the electrical and electronics (E&E) sector, but global trade remains soft partly due to the continued shift in spending from goods to services, and ongoing trade restrictions.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said Bank Negara has demonstrated its credibility in controlling the inflation rate.
In 2023, the inflation rate went down to 2.5 per cent from 3.3 per cent previously as the OPR was raised from 1.75 per cent to 3.00 per cent during those two years.
"However, Bank Negara continues to exercise prudence by stating their area of concern such as the impact of subsidy rationalisation and price control measures to the overall inflation in 2024. On that note, there is a need to keep the monetary policy stance steady," said Afzanizam.
He believes the stand of monetary policy is already restrictive with the real rate of interest standing at 1.5 per cent against the long term average of 0.6 per cent.
"The way I see it, Bank Negara might keep the OPR unchanged and reduce it should the global economy grow slower than expected," he said.
Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said the OPR rate of three per cent is equivalent to pre-pandemic level. Thus, current rates provide Bank Negara with the arsenal to cut the rates again should there be a need to boost the economy.
Aimi added that the current OPR rate is also not too low due to good liquidity in the financial market. Hence, this may push Consumer Price Index higher amid steady and balanced demand.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff believes Bank Negara Malaysia will maintain the OPR at least until the first quarter of the year.
"This is because even though we are experiencing strong domestic demand and better labour market conditions, our inflation rate is still low. (However, we don't want to widen the gap between our OPR and the US interest rate," Ahmed Razman said.