Malaysia Holds Rates, Upbeat on Outlook Despite Global Risks
(Bloomberg) -- Malaysia kept its benchmark interest rate unchanged on Thursday, citing robust domestic growth while cautioning of risks from the brewing global trade war.
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Bank Negara Malaysia left the overnight policy rate at 3% in its second meeting this year, as predicted by all 23 analysts in a Bloomberg News survey. The last time the central bank adjusted rates was in May 2023, with a 25-basis-point hike.
'Markets are looking for steady hands on interest rate policy entering a period of heightened uncertainties on geopolitical tensions and global trades, and BNM delivered just that,' said Maybank Securities Pte head of fixed-income research Winson Phoon, adding that the key rate will likely be kept at 3% throughout 2025.
The ringgit was up 0.1% at 4.4257 against the dollar, showing little reaction to BNM's decision.
'The monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects,' BNM said in a statement Thursday.
Malaysia's steady economic growth has allowed it to resist the recent global pivot toward easing. The momentum will likely be sustained in 2025, anchored by domestic demand, the central bank said. Employment and wage growth should boost consumer spending, while public and private sector projects drive investment.
The government has maintained its gross domestic product forecast of a 4.5% to 5.5% expansion this year. There are risks ahead as the global trade war deepens, and US President Donald Trump threatens to impose tariffs on semiconductor imports. The US is Malaysia's third-largest market for chip shipments.
Malaysia's economy will remain resilient despite global uncertainties, BNM Governor Abdul Rasheed Ghaffour said in an interview with Bernama on Thursday. The nation's diversified economy and broad export base will help cushion any impact from external shocks, he added.
Downside risks to Malaysia's growth outlook include an economic slowdown among its major trading partners and lower-than-expected commodity production. Exports could see softer expansion this year, BNM said in its statement.
Inflation will remain manageable, with global commodity prices seen trending lower. The recent increase in minimum wage and civil servant salaries should have a limited impact on price pressures, the central bank said.
The government has said it expects inflation to average 2% to 3.5% in 2025, an acceleration from 1.8% last year. The wide forecast range takes into account any potential flare-ups in price pressures following Malaysia's pledge to reduce subsidies for the country's most popular gasoline by mid-year.
Meanwhile, the ringgit will primarily be driven by external developments and financial markets could see 'heightened bouts of volatility,' according to the central bank. Still, narrowing interest rate differentials between Malaysia and advanced economies should be positive for the currency, it said.
The ringgit was the best performer across emerging markets last year, after BNM encouraged firms to repatriate their overseas income to support the currency.
The monetary policy committee 'remains vigilant to ongoing developments to inform the assessment on the domestic inflation and growth outlook,' the central bank said.
--With assistance from Marcus Wong, Ram Anand, Cecilia Yap and Joy Lee.
(Updates ringgit's level in fourth paragraph and adds BNM governor's comments to Bernama in eighth paragraph.)
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