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Bank Negara seen to keep interest rate on hold after surprise poll result

Malaysia’s central bank is set to keep interest rates unchanged on Thursday, providing policy stability after the shock election victory of Tun Dr Mahathir Mohamad. All 18 economists surveyed by Bloomberg before Wednesday’s poll had forecast Bank Negara Malaysia will hold its benchmark rate at 3.25 percent. Economists at Nomura Holdings Inc. and Maybank Kim Eng Research Ltd. retained their calls after the vote outcome.

The central bank said on its website it will release its policy statement as scheduled at 3pm.

“Given this shock result, they’re going to be looking at how this will impact growth and I think there is a lot of downside,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore.

“Any follow up rate hike is going to be very unlikely.”

The central bank moved early with a rate hike in January and can afford to hold off on further tightening in the face of a global sell-off in emerging markets in recent weeks.

Inflation eased to 1.3 percent in March, the slowest pace since July 2016, with a stronger currency since last year helping to ease price pressures.

The government had forecast inflation will average 2.5 percent to 3.5 percent this year.

Rising oil prices and a slide in the currency in recent weeks are clouding the outlook. Added to that is a booming economy, which the central bank has forecast could grow as much as 6 percent this year.

While Bank Negara probably won’t make direct reference to the election in its statement, the result has a bearing on the economy’s outlook.

Investors are seeking policy continuity, with a focus on sustaining strong economic growth, curbing the budget deficit and managing market risks.

Mahathir has pledged to scrap a contentious goods-and-services tax within 100 days in power. Financial markets are closed Thursday and Friday after the government declared public holidays.

Market Risks

Malaysia is one of the least affected of emerging markets globally from financial volatility amid a stronger dollar and a pick-up in U.S. interest rates.

The benchmark stock index climbed to a record in April, helped by foreign inflows, and while the ringgit has taken a knock in recent weeks, it’s still up more than 2 percent against the dollar this year.

Neighbors like the Philippines and Indonesia have suffered stock outflows and currency slumps that are among the worst in Asia.

The Philippines is set to raise interest rates later on Thursday, which would the first hike since 2014, while Indonesia’s central bank has also said it’s prepared to move to help restore confidence in the currency.

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