Economic review

Malaysia holds policy rate at 3.25 pct as expected

2018-07-11 20:06:49 (Beijing Time)         English.news.cn

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KUALA LUMPUR, July 11 (Xinhua) -- The Malaysian Central Bank Wednesday left the benchmark policy interest rate unchanged at 3.25 percent, in an expected move though more countries are returning to interest rate normalization with a strong U.S. dollar.

At its first Monetary Policy Committee (MPC) meeting under the new governor Nor Shamsiah Mohd Yunus, the bank said in a statement that it decided to maintain the Overnight Policy Rate (OPR) as "the degree of monetary accommodativeness is consistent with the intended policy stance."

The bank also expects Malaysian economy to remain on a steady growth path, following its continued expansion in the first half, supported by private sector activity with additional impetus from net exports.

Private consumption will be underpinned by continued wage and employment growth, with an additional lift from higher household spending due to the tax holiday. Investment activity is projected to be supported by capacity expansion especially by the export-oriented industries and ongoing infrastructure projects particularly in the transport and utilities sub-sectors.

On the global economy, it said, the intensification of global trade tensions could affect sentiments and weigh on trade, investment and consumption.

"Coupled with ongoing monetary policy normalization in the advanced economies, shifting investor expectations and sentiments could lead to further capital outflows and financial market adjustments in some emerging economies," it said.

However, it believed the world economy will continue to expand albeit with some divergence across economies while global trade sustained its growth momentum.

Meanwhile, the headline inflation this year is projected to be lower than earlier forecast after taking into consideration the impact of recent policy measures on domestic cost factors, said the bank.

Overall, the positive domestic economic outlook, sound financial sector and improving current account surplus of the balance of payments will continue to support Malaysia's fundamentals, according to the bank.

It also said, the ringgit exchange rate would be more reflective of the underlying fundamentals of the economy when the external and domestic uncertainties recede.

"Notwithstanding the heightened financial market volatility, the domestic monetary and financial conditions remain supportive of economic growth," it said, adding that the bank's monetary operations continue to ensure sufficient liquidity to support the orderly functioning of money and foreign exchange markets and intermediation activity.

Malaysian Central Bank's move is in line with expectations, and economists expect the bank to remain neutral and on hold for the rest of the year.

"The monetary policy statement has a distinctly 'neutral' tone relative to the 'mildly hawkish' one in May," said ANZ Research in a note Wednesday.

It projected the central bank to remain accommodative, but is unlikely to assume a dovish stance and jeopardize the relative resilience of the ringgit.