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Malaysia central bank to hold rates through 2024 despite weak currency: Reuters poll

BENGALURU : Malaysia’s central bank will hold its key interest rate at 3 per cent on Thursday and through 2024, despite a weakening ringgit, amidst stable domestic inflation and a steady growth outlook, according to a Reuters poll of economists.

With inflation at 1.9 per cent in September, its lowest since March 2021 and far below the government’s estimate of 2.5 per cent-3 per cent for this year, Bank Negara Malaysia (BNM) has room to remain accommodative after a modest tightening cycle.

Although 125 basis points of rate increases have pushed the key interest rate where it was before the COVID-19 pandemic, the Malaysian ringgit has fallen about 8 per cent against the U.S. dollar this year, more than its Southeast Asia peers.

Fears of a hawkish U.S. Federal Reserve and a strong dollar prompted Bank Indonesia and the Philippine central bank to raise rates this month after a long pause, adding pressure on the BNM to follow suit.

However, all but two of 30 economists surveyed from Oct. 23 to Oct. 30 forecast that the central bank would hold its overnight policy rate steady at 3 on Thursday.

Two expected a 25 basis point increase to 3.25 per cent.

“Despite resumed rate hikes from regional peers, we do not believe conditions have materialised to prompt BNM for a resumed rate hike. We maintain our view that BNM has completed its tightening cycle this time around,” said Yun Liu, ASEAN economist at HSBC.

“A risk to our view of a continued pause is currency concerns, with USD-MYR recently hitting all-time highs.”

According to a separate Reuters poll, Malaysia was expected to grow 4 per cent this year and 4.5 per cent in 2024 while inflation was expected to average 2.8 per cent this year and 2.5 per cent next.

While the BNM is not forecast to hike again, economists do not expect a cut any time soon. Among economists who had a long-term view, 23 of 25 expected no change before end-2024.

“From BNM’s perspective, 3 per cent is relatively close to the historical level. It’s a level where they are quite comfortable given their growth and inflation dynamics,” said Lavanya Venkateswaran, senior ASEAN economist at OCBC.

“There could be a sense that BNM needs to possibly try and adjust for the interest rate differentials to the U.S. or try and boost sentiment via a rate hike, which I still think is probably not their port of call yet.”

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