Bank Negara kept its policy rates unchanged at 3.25% at its 7 May monetary policy meeting. The central bank remains comfortable with its policy stance, despite the recent volatility in the currency and the negative terms of trade shock from lower oil prices.
However, growth momentum in the economy remains firm, with Q1 GDP likely to be around 5.5%, down only marginally from 5.8% in Q4 14.
For the whole year, PM Najib recently said that growth may reach the upper end of the government's forecast range of 4.5-5.5%, which indicates confidence in the sustainability of growth.
On inflation, while BNM remains watchful over the impact of the good and service tax, it does not see the risk of high inflation at the moment.
"With the central bank likely to remain on hold for most of 2015, we forecast a rate hike in Q4 15, only after the Fed has started raising its policy rates", says Barclays.
