Malaysian central bank keeps interest rate on hold, economic growth likely to moderate in 2016

The Malaysian central bank, Bank Negara (BNM), kept its overnight policy rate on hold at 3.25% yesterday in order to balance the risks between inflation and growth. The central bank stated that the growth outlook is susceptible to risks on the downside emerging from the existing fragilities, which are structural as well as cyclical. BNM projects the country's economic growth to moderate in 2016.

Domestic demand in Malaysia is expected to remain as the important growth driver, whereas external headwinds are likely to deepen and continue weighing down on GDP growth. Meanwhile, in 2016, inflation is likely to be higher because of the weaker currency exchange rate and adjustments in administered prices.

"A forecast of 2.5% has been pencilled into our forecast, up from 2.1% in 2015. However, inflation is expected to ease going into 2H16", says DBS.

The BNM has reiterated a neutral monetary policy stance for now and continue to be wary regarding the risks ahead. The central bank underlined that the monetary policy stance is accommodative and supportive of economic activity. It also acknowledged the increased risks in financial environment and global economy and is closely observing and assessing their implications on domestic growth and price stability.