BNM keeps key interest rate unchanged at 3.25 pct, likely to maintain neutral tone and stay on hold in 2019

Malaysian central bank kept its Overnight Policy Rate on hold at 3.25 percent today, as expected. The BNM has maintained that the global growth continues although with some moderation. Markedly, they stated that trade tensions are “beginning to have a material impact on global trade and investments” rather than merely “a key source of downside risk”.

The central bank continues to be positive on the domestic front. It is upbeat on private sector activity, driven by private consumption and underpinned by private investment. Lowered government spending is likely to e countered by private sector activity. BNM repeated that the external sector is expected to weaken in line with decelerating global demand. The central bank anticipates that the Malaysian economic growth will remain on a stable path this year.

The central bank expects the headline inflation to “average moderately higher” this year than the 1 percent year-average in 2018. Significantly, the trajectory of headline inflation “will be dependent on global oil prices” because of the government’s decision to resume market-determined petrol pricing. A low base effect might come into play in the latter half of 2018, as consumption tax effects begin to wane.

“As such, we continue to expect BNM to maintain its ‘neutral’ tone and remain on hold through 2019”, said ANZ in a research report.