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Malaysia's Bank Negara likely to keep policy rate on hold this year

The Bank Negara Malaysia (BNM) held overnight policy rate (OPR) unchanged at 3.00 percent, as it was widely expected at policy meet last week. In the policy statement that followed, Bank Negara noted that the private sector activity will be the key driver of economic growth and committed to continuously inject liquidity to ensure stable FX market.

Malaysia's domestic inflation is bound to head up and currency stability will be a key focus for the central bank in the near term. Downside risks to growth due to global uncertainties remain, but a recent upturn in some indicators including exports has allowed the central bank to breathe more easily.

“We expect inflation to edge higher to 2.7% in 2017 from 2.1% in 2016 on cost-push price pressures arising from firmer global oil prices and the government’s subsidy rationalisation scheme for cooking oil, and as the impact of MYR weakness starts to flow through,” said ANZ in its research note.

"It is looking more likely now than before that BNM would keep its policy rate on hold this year," said OCBC bank in a report.

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