- Some economists say one more hike this year still on cards
- Easing price pressures, exports drop support pause this week
According to Bloomberg article published on May 3, 2023, Malaysia will likely extend a pause in rate increases on Wednesday, as slowing inflation gives it space to continue assessing the impact of last year’s monetary tightening amid weakening global demand.
Bank Negara Malaysia will keep the overnight policy rate at 2.75% for a third straight meeting, according to 16 of 19 analysts in a Bloomberg survey. Economists from Bank of America, Standard Chartered Plc and United Overseas Bank expect BNM to increase by a quarter point to bring the key rate back to pre-pandemic level of 3%.
Malaysia’s headline inflation eased to a nine-month low of 3.4% in March from a year ago. At the same time, exports from the trade-reliant nation marked their first contraction since August 2020 in a sign of dimming global growth, supporting the case for BNM to stand pat.
“Looking ahead, softer economic growth and stabilizing commodity prices allude to lower inflationary pressure this year,” analysts at TA Securities wrote in a note Tuesday.
Malaysia’s central bank projects full-year inflation of 2.8% to 3.8% in 2023, compared to 3.3% in 2022, and expects economic growth to slow to within 4%-5% this year after expanding at the quickest pace in more than two decades in 2022.
What Bloomberg Economics Says:
“Malaysia’s softer inflation in March adds to the case for the central bank to extend the pause in its tightening cycle. The decline in both headline and core consumer-price gains will help damp inflation expectations. This comes on top of a contraction in March exports and with the prospect of still-weaker global demand ahead.” Tamara Mast Henderson, Asean Economist
Still, there are risks to the inflation outlook, and the ringgit is the worst performer in Southeast Asia so far this year. Malaysia central bank Governor Nor Shamsiah Yunus said in March that “there is potential for the degree of accommodation to be further adjusted” should price pressures last longer than expected.
The government’s plans to cut subsidies, exchange rate, and stronger demand after China’s reopening are a few key wild cards, said Julia Goh and Loke Siew Ting of United Overseas Bank.
Bank of America and UOB, in separate notes, expect a one-and-done hike from Malaysia on Wednesday before holding at 3% for the rest of the year. Analysts including those from Citigroup Inc., Malayan Banking, Hong Leong Bank, RHB Bank and TA Securities aren’t closing the door on one more quarter-point increase in the second half.
