Malaysia Leaves Key Rate at 3.25%, Cuts RRR

The central bank of Malaysia left its overnight policy rate unchanged at 3.25 percent at its January 2016 meeting as widely expected but cut the reserve requirement ratio by 50 bps to 3.5 percent, aiming to increase liquidity.

Policymakers have left the borrowing cost steady at 3.25 percent since September of 2014 as they consider current policy stance remains accommodative and supportive of economic activity but showed concerns over a weak ringgit and risks arising from global economic and financial environment. In a separate statement, the central bank lowered the reserve requirement ratio to 3.5 percent from 4 percent effective February 1st.

Excerpts from the statement by the Bank Negara Malaysia:

Going forward, while recent trends suggest a turnaround in exports, the contribution of the external sector to overall growth is expected to be modest. In this challenging environment, the economy is expected to experience more moderate growth in 2016, after expanding by about 5 percent in 2015. Downside risks to growth have increased following greater uncertainty on both the global and domestic fronts. In confronting this more difficult environment, the Malaysian economy will benefit from having diversified sources of growth, economic flexibility, low unemployment, manageable level of external debt, and a well-capitalised banking system and developed capital markets that provide continued access to financing.

Headline inflation averaged 2.1% in 2015 and is expected to be higher in 2016, given recent adjustments in administrative prices and the weaker ringgit exchange rate. The impact of these domestic cost factors on overall inflation is, however, expected to be mitigated by the continued low energy and commodity prices and the generally subdued global inflation. In terms of trajectory, headline inflation is anticipated to peak in the first quarter of 2016 and to moderate thereafter.

Recent external and domestic developments have continued to affect the ringgit exchange rate and domestic financial markets. The net external outflows have also led to a moderation in domestic liquidity. Bank Negara Malaysia’s monetary operations have ensured that there is sufficient liquidity to support the orderly functioning of the money and foreign exchange markets. The financial system remains sound with financial institutions operating with ample liquidity buffers. Consequently, the growth of financing to the private sector continues to be healthy.

At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC recognizes that there are heightened risks in the global economic and financial environment. These risks are being closely monitored to assess their implications on macroeconomic stability and the prospects of the Malaysian economy. This is to ensure that the monetary policy stance is consistent with the sustainability of the overall growth prospects.

Malaysia Leaves Key Rate at 3.25%, Cuts RRR

Bank Negara Malaysia | Joana Taborda |
1/21/2016 10:23:29 AM