Malaysia’s Central Bank Keeps Interest Rate Unchanged

Malaysia’s central bank, Bank Negara Malaysia, announced on Thursday that it will maintain its benchmark interest rate at 3.0%. This decision comes as no surprise, as all eight economists polled by The Wall Street Journal had predicted that the bank would keep the rate unchanged.

The central bank’s decision reflects its cautious outlook on the country’s economic growth prospects. It highlighted the risks posed by weak external demand and ongoing declines in commodities production. Despite these concerns, Bank Negara believes that the current interest rate level supports the economy and aligns with its assessment of inflation and growth prospects.

Economists anticipated the central bank’s decision, citing moderating growth and stable inflation as key factors influencing their expectations. Looking ahead to 2024, Bank Negara expects growth to be primarily driven by resilient domestic expenditure, with additional support from the anticipated recovery in electronics exports.

In terms of inflation, both headline and core inflation have eased due to decreased cost pressures. The central bank predicts that inflation will remain modest in 2024, albeit subject to potential changes in domestic subsidies policy, price controls, global commodity prices, and developments in financial markets.

The central bank also acknowledged the impact of the U.S.’s extended period of low interest rates and geopolitical concerns, which have resulted in a stronger U.S. dollar and weighed on the Malaysian ringgit. To manage risks and ensure the orderly functioning of the domestic foreign exchange market, Bank Negara will continue to address heightened volatility and provide liquidity support.

While Bank Negara’s decision to maintain the interest rate is in line with market expectations, it underscores the challenges faced by Malaysia’s economy. The central bank’s cautious stance reflects the need to address these risks and support sustainable growth in the face of uncertain external conditions.