Malaysian ringgit notes are seen among other currency notes in this photo illustration taken in Singapore. (Reuters photo)
KUALA LUMPUR: Malaysia’s central bank kept its key interest rate at 3.25% on Thursday, as expected, while eyeing a slowdown in economic growth and planned public spending cuts by the new government.
Bank Negara Malaysia last increased its overnight policy rate in January, when it described its first increase since July 2014 as a move to “normalise” monetary policy.
That was the first rate change since July 2016, when there was a cut by 25 basis points.
The bank’s policy statement maintained a stable tone. “At the current level of the OPR, the degree of monetary accommodativeness is consistent with the intended policy stance.”
Finance Minister Lim Guan Eng said growth was seen coming in at 4.8% this year before improving marginally to 4.9% in 2019.
The government’s 2018 growth forecast was lower than BNM’s earlier expectation of 5.0%, and far below the 5.5-6.0% range projected by the previous administration.
In its statement, the central bank said the economy would continue to face downside risks from the trade tensions and prolonged weakness in the mining and agriculture sectors.
“Nevertheless, on balance, the economy is expected to remain on a steady growth path in 2018 and 2019.”
In May, Prime Minister Mahathir Mohamad led an opposition coalition to a surprise general election victory to end the near decade-long rule of his scandal-tainted predecessor, Najib Razak.
The new government has abandoned earlier fiscal deficit targets, forecast slower growth, and has revised up the amount of debt to a total one 1 trillion ringgit ($239.92 billion), having unearthed more debts run up during Najib’s time.
“Bank Negara is unlikely to change its stance until at least mid-2019 as it looks to balance the need to support growth while also staving off any capital flight in the face of ongoing global liquidity tightening and risks from the U.S.-China trade war,” said Kristina Fong, an economist with local ratings firm RAM Ratings.
“There has to be a continued slowdown, maybe two quarters of sub-4% growth before it may warrant some stimulus. Right now, it seems like a comfortable stance for them (Bank Negara) to hold,” she said.