Malaysia kept its benchmark interest rate unchanged, halting its tightening cycle earlier than expected as a darkening global outlook poses risks to the economy.
(Bloomberg) — Malaysia kept its benchmark interest rate unchanged, halting its tightening cycle earlier than expected as a darkening global outlook poses risks to the economy.
Bank Negara Malaysia maintained the overnight policy rate at 2.75% on Thursday, a decision seen by just one of 18 economists in a Bloomberg survey. The rest had predicted a quarter-point hike, which would have returned borrowing costs to levels just before the pandemic.
“Any changes to the OPR depend on how strong the economy and prices grow,” the central bank in a statement. The decision allows policymakers to assess the impact of the past adjustments, “given the lag effects of monetary policy on the economy.”
Malaysia’s ringgit weakened 0.2% to 4.3225 per dollar after the decision, while the benchmark equities index was little changed.
The pause “marks the end of BNM’s hiking cycle because the growth outlook is deteriorating and led by weaker exports, which we’ve argued for a while will have quick spillovers to domestic demand,” said Euben Paracuelles of Nomura Holdings Inc., who was the lone analyst to accurately predict the monetary authority’s decision in Bloomberg’s survey.
The central bank said headline inflation peaked in the third-quarter of last year, and is expected to moderate this year while staying elevated. It sees 2022 growth exceeding its previously projected range of 6.5%-7%, with expansion in 2023 expected to slow, mirroring global trends.
Malaysia’s policymakers, who raised the rate by 100 basis points in four straight moves last year to fight inflation, are turning their focus to shielding the economy from darkening global prospects. Prime Minister Anwar Ibrahim is set to unveil a fresh spending plan next month, which may include new economic estimates and a focus on rising sovereign debt levels.
The BNM has come to a “stage where policymakers need to take a pause to assess the impact of policy tightening on both inflation and growth,” said Winson Phoon, head of fixed income research at Maybank Securities Pte. in Singapore.
While the trade-reliant nation posted its 25th straight surplus in December, growth in exports of nearly 6% was below expectations and substantially slower after 16 consecutive months of double-digit expansion. The ringgit, which has strengthened along with most Asian currencies, is up almost 2% this year after slumping to a near 25-year low in October.
Economic growth will be the “key determinant” of the local currency’s performance this year, Trade Minister Zafrul Aziz told Bloomberg Television in an interview this week in Davos.
–With assistance from Tomoko Sato, Ditas Lopez, Chester Yung and Liau Y-Sing.
(Adds analyst comment in third paragraph.)
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