Malaysian central bank keeps interest rate on hold, economy likely expanded 4.5 pct in Q1 - ANZ

The Malaysian central bank kept its overnight policy rate on hold at 3 percent on Friday, with economic conditions evolving consistent with their expectations. BNM, in its monetary policy statement, mentioned improving prospects for growth, mainly driven by domestic demand amidst persistent wage and employment growth as well as implementation of several investment projects.

The private consumption outlook is mixed currently. It is likely to be underpinned by recent measures to hike disposable incomes such as a rise in the targeted cash handouts. But the weak real income growth and increased household debt at 88 percent of GDP may restrict household consumption. The first quarter growth is likely to have grown 4.5 percent year-on-year, a rate similar to that in the earlier quarter. Stronger exports and investment are expected to have countered the weakness in private consumption.

The trajectory of headline inflation is expected to be more volatile onwards as fuel prices that contributed 7.8 percent to the CPI basket. The weekly adjusted would permit for a more rapid transmission of global crude oil prices to domestic petrol pump prices.

However, the Malaysian central bank expects headline inflation to ease in the second half of the year. Moreover, core inflation has been comparatively benign at 1.9 percent year-on-year, as compared with the headline inflation of 4.3 percent year-on-year in the first quarter.

“With growth unlikely to accelerate meaningfully and demand pull price pressures muted, there is limited pressure on BNM to hike rates”, stated ANZ.