Malaysia Monetary Policy Unchanged in May

Malaysia’s central bank left the overnight policy rate on hold at 3.25 percent on May 7th, citing uncertainty over growth and inflation. Domestic demand is expected to moderate, as private consumption may fall due to domestic factors.

Statement by the Bank Negara Malaysia:

The global economic expansion remains moderate, with divergent growth momentum across economies in the first quarter of 2015. While there have been improvements in the advanced economies, the pace of recovery has continued at a modest and uneven pace. For the emerging economies, while growth is slower, the economies continue to be the key contributor to global growth. In most of Asia, growth has been sustained by the continued expansion in domestic demand. Going forward, global economic growth is expected to improve although at a moderate pace. Downside risks to this outlook, however, continue to persist. In this environment, the international financial markets will continue to be affected by shifts in global liquidity and investors sentiments.

For Malaysia, latest indicators suggest that domestic demand has continued to support growth in the first quarter. Looking ahead, the prospects are for the Malaysian economy to remain on a steady growth path, with domestic demand remaining as the key driver of growth. Although private consumption is expected to moderate as households adjust to the introduction of the Goods and Services Tax (GST), consumption expenditure will be supported by the steady rise in incomes and employment. Investment activity is expected to be led by capital spending in the export-oriented industries, the services sector and for infrastructure projects. These investments will cushion the impact of the lower oil and gas-related investment activity. On the external front, while export growth will be affected by lower commodity prices, manufactured exports will continue to benefit from the improvement in economic activity in several advanced economies and the sustained growth in Asia.

Headline inflation averaged at 0.7% in the first quarter of 2015 due to lower domestic fuel prices. For the rest of the year, headline inflation is expected to trend higher given the impact of the implementation of the GST. This is expected to be partially offset by the overall lower global commodity and energy prices. Underlying inflation is expected to remain contained amid the stable domestic demand conditions. At the current level of the OPR, the stance of monetary policy remains accommodative and supportive of economic activity. The MPC will continue to carefully assess external and domestic developments and their implications on the risks to inflation and the Malaysian economy. While the risks of destabilising financial imbalances are contained, the MPC will continue to monitor these risks to ensure the sustainability of the overall growth prospects.

Malaysia Monetary Policy Unchanged in May

Bank Negara Malaysia | Joana Ferreira |
5/7/2015 11:39:31 AM