Fri, May 11, 2018 - Page 10 News List

Interest Rates: Malaysian bank keeps benchmark unchanged

Bloomberg

Malaysia’s central bank provided policy stability by keeping its benchmark interest rate unchanged yesterday after a surprise election victory by opposition leader and former Malaysian prime minister Mahathir Mohamad.

Bank Negara Malaysia left the overnight policy rate at 3.25 percent, it said in a statement in Kuala Lumpur, as predicted by all 18 economists in a Bloomberg survey.

Policymakers sought to address investor concerns after the election result, saying Malaysia’s economic outlook remains positive and “fundamentals are strongly anchored.”

“The domestic economic outlook remains positive, the financial sector is strong and monetary and financial conditions are supportive of economic growth in the post-election environment,” the bank said.

The economy is enjoying a strong rebound at the moment, with growth surging to 5.9 percent last year and forecast by the central bank to reach 5.5 percent to 6 percent this year.

Most of that recovery has come on the back of a pickup in global trade and rising domestic demand, but with trade tensions dominating this year, and exports accounting for two-thirds of GDP, there are risks to Malaysia’s outlook ahead.

Bank Negara was one of the first central banks in Asia to raise rates this year with a hike in January, allowing it to hold off of any further tightening just yet. Inflation is subdued, easing to 1.3 percent in March, the slowest pace since July 2016.

While price pressures are expected to remain moderate this year, “the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain,” the bank said.

In a post-election environment, investors are seeking policy continuity, with a focus on sustaining strong economic growth, curbing the budget deficit and managing market risks.

Mahathir has pledged to scrap a contentious 6 percent goods-and-services tax (GST) within the first 100 days in power.

The tax, which was introduced in 2015, is widely blamed by citizens for their rising living costs.

The opposition coalition said it would replace the GST with a sales and services tax that was fairer.

The coalition also promised to reintroduce gasoline subsidies, which could be a boon for consumption as the new government eyes a 6 percent growth goal. They also campaigned to increase royalties to oil-producing states and raise minimum wages.

Financial markets were closed yesterday and are today after the government declared public holidays.

Malaysia is one of the least affected of emerging markets globally from financial volatility amid a stronger US dollar and a pickup in US interest rates.

The benchmark stock index climbed to a record last month, helped by foreign inflows, and the ringgit is up more than 2 percent against the US dollar this year.

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