• Bank Negara Malaysia likely to keep interest rate on hold in July

    Source: FxWire Pro - Commentary / 11 Jul 2017 19:03:29   America/New_York

    The Malaysian central bank, Bank Negara Malaysia is set to announce its policy decision this week. According to a Commerzbank research report, the BNM is expected to keep its rates on hold at 3 percent. Glancing at it, there appears to be a case for tighter policy given still relatively firm inflation and robust growth. The central bank, in March, anticipated that the Malaysian economy will grow 4.3-4.8 percent, while inflation would come in at 3 percent to 4 percent.

    Growth is likely to ease for the remainder of the year to a more sustainable but still respectable rate. The spike in headline inflation so far in 2017 was greatly driven by increased retail fuel prices after a shift in the price setting mechanism. Underlying price pressure continues to be greatly in check with core inflation staying manageable at the mid-2 percent level.

    The present growth-inflation mix is still favourable and there is little impetus for the central bank to change its policy stance. Instead, the focus for the BNM is seemingly shifting to MYR stability, noted Commerzbank. The central bank is promoting onshore trading to improve liquidity and deepen the domestic financial markets. This would help in mitigating excessive depreciation, particularly if the markets began to re-price a more rapid Fed rate hike path. Moreover, there is rising speculation of an early general election in the fourth quarter this year, before the August 2018 deadline.

    “In this situation BNM wants to ensure a relatively stable USD/MYR exchange rate which we see within the 4.25-4.35 range near term”, added Commerzbank. 

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