The Malaysian central bank, Bank Negara Malaysia, stood pat today. The Overnight policy rate was kept on hold at 3 percent; however, the bank indicated that it will review the extent of accommodation required in the current environment of entrenched growth.
The central bank gave a positive assessment of growth conditions with a negligible reference to downside risks. It noted synchronized strength in domestic and external demand, positive spill-overs from external demand into investment and wages and sustained infrastructure investment cycle.
Even if attributing the currently high inflation to increased global crude oil prices, the Malaysian central bank acknowledged that full year 2017 inflation was expected to be at the upper end of its forecast estimate corridor of 3 percent to 4 percent. The central bank expects inflation to moderate next year but is likely to be sensitive to oil prices. Meanwhile, core inflation is expected to be sustained by strong domestic demand. The BNM, consequent to the positive assessment of growth and inflation, has implied that it is expected to review the current degree of monetary accommodation.
“In our view, the region’s growth trajectory is not only strengthening but also gaining breath, thereby creating a favorable backdrop for policy normalization”, said ANZ in a research report.
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