KUALA LUMPUR: Malaysia has opted to keep its benchmark interest rate unchanged, a decision supported by economists who believe that an increase at this juncture would yield little benefit.
The current conditions, characterised by uncertainty, have made a strong case against tightening monetary policy, they said.
"I believe that an increase in this moment would not have brought in any sensible results. As it is demonstrated by the IDR depreciation and interest rate differential with the US Federal Reserve (FED), monetary policy today cannot be considered a major explanation for currency weakness.
"Uncertainty is a much bigger factor and that uncertainty points in the direction of not tightening too much monetary policy. So, ceteris paribus, I do not expect a rise in the short term," Centre for Market Education chief executive officer Carmelo Ferlito told the Business Times.
Bank Negara Malaysia has decided to keep its overnight policy rate (OPR) unchanged at 3.00 per cent as per economists' projections.
In a statement after its Monetary Policy Committee (MPC) meeting today, Bank Negara said that at the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.
"We will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability," it said in a statement.
The MPC had only one rate hike of 25 basis points last year in May.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid believes that Bank Negara's decision to leave the OPR unchanged indicates a belief that the current rate is supportive of growth and may remain steady for the rest of the year.
Afzanizam said this decision reflects a delicate balance between supporting growth, as the OPR affects the cost of borrowing for businesses and households, and the need for tight monetary conditions to manage inflation risks.
"For now, leaving the OPR unchanged is the right move. Going forward, the Bank Negra will continue to scrutinize the evolving outlook on inflation.
"The wide margin in the inflation forecast reflects greater uncertainty over the impact of subsidy rationalisation on petroleum related products," he said.
Meanwhile, Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said it is a good decision by Bank Negara to maintain the rate, especially for the benefits of the domestic economy, which will be a crucial factor for the business community as well as for the rakyat.
Aimi said OPR at 3 per cent provides strong stability that will help the stakeholders balance the various factors, especially the global economy's influence such as high commodity prices and unstable inflationary rates.
"I reckon the rate will be maintained throughout the year as the federal reserve is still adamant about reducing interest rates this June. This is due to the inflation rate still above its target of only 2 per cent," he said.
In addition, economist Dr Geoffrey Williams said the Bank Negara's decision came as no surprise to him, who noted that the move reflects the country's stable economic conditions.
Williams said the decision is supported by factors such as a slowdown in inflation, forecasted economic growth, and a robust financial system.
"Even the ringgit has strengthened. So Bank Negara is doing a good job on monetary policy.
"We do not expect any change in the OPR this year, and this will provide a source of stability for the economy, consumers, and businesses," he added.