Malaysia keeps key rate steady
kuala lumpur — Malaysia’s central bank kept its key interest rate unchanged on Thursday, citing lower inflation and steady economic growth hours after a shock election victory for the opposition that Moody’s rating agency said left the country in uncharted territory.
Bank Negara Malaysia left its overnight policy rate at 3.25 per cent, as expected by all economists in a Reuters poll.
Thursday’s policy meeting was scheduled before Prime Minister Najib Razak last month called a general election for May 9.
After opposition parties led by former premier Mahathir Mohamad scored a stunning victory — which will bring the first change of government since independence in 1957 — public holidays were declared for Thursday and Friday.
With the holiday, financial markets were closed and there was no domestic trading. But Malaysian assets traded offshore took a beating. The ringgit’s one-month nondeliverable forwards fell 1.2 per cent after the opposition victory.
The offshore ringgit’s fall and a rise in the cost of insuring Malaysia’s debt showed how nervous investors were about the stunning election defeat of a coalition ruling the country for six decades. “Some campaign promises, if implemented without any other adjustments, would be credit negative for Malaysia’s sovereign,” Moody’s said, citing the proposed abolishment of the goods and services tax and the reintroduction of fuel subsidies.
Capital Economics said that the economy “has cooled in recent quarters, and political uncertainty following [Wednesday’s] shock election result has increased the downside risks to growth.”
In its statement on Thursday’s policy decision, BNM made no mention of the election. Officials did not meet reporters.
“At the current level of the OPR, the degree of monetary accommodativeness is consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid lower inflation,” the central bank’s statement said.
BNM said headline inflation is expected to remain moderate over the year. Headline inflation slowed in the first quarter, with the annual rate declining to 1.3 per cent in March — its slowest in nearly two years.
At its meeting in January, when inflation was higher, the central bank raised its rate 25 basis points to “normalise” policy.
The hike in January was BNM’s first since July 2014, and the first change since July 2016, when a 25 basis point cut was implemented.