Malaysia's central bank keeps policy rate on hold, sees growth moderating

A file picture of Malaysian ringgit banknotes being counted at the RHB Investment Bank Bhd. headquarters in Kuala Lumpur, Malaysia. PHOTO: BLOOMBERG
A file picture of Malaysian ringgit banknotes being counted at the RHB Investment Bank Bhd. headquarters in Kuala Lumpur, Malaysia. PHOTO: BLOOMBERG

KUALA LUMPUR (REUTERS, BLOOMBERG) - Malaysia's central bank held its overnight policy rate at 3.25 per cent on Thursday, keeping policy steady while the Southeast Asian country and its markets were rocked by corruption allegations against Prime Minister Najib Razak.

"For Malaysia, the latest indicators point to continued expansion of the economy in the second quarter, albeit at a more moderate pace," Bank Negara Malaysia's (BNM) monetary policy committee said in a statement.

The central bank's decision was as expected by a Reuters poll of economists. Inflation remains benign and a recovery in export growth depends on overseas markets. A more pressing worry for the central bank, analysts say, is renewed pressure on the ringgit currency as a political storm rages around Mr Najib.

A task force is investigating state investment company 1Malaysia Development Bhd. amid allegations funds connected to it ended up in Mr Najib’s personal accounts, raising political uncertainty in the Southeast Asian nation.

With above-5 percent economic growth and inflation staying within the official forecast range, the central bank has little need for policy easing that could further weaken the currency.

“There’s no compelling reason for them to adjust interest rates at this juncture given that growth is still relatively steady,” Julia Goh, a Kuala Lumpur-based economist with United Overseas Bank Ltd., said before the decision. “Generally inflation is also manageable.”

Malaysia’s one-year interest-rate swaps suggest traders weren’t expecting a rate cut Thursday. The swaps were at 3.695 per cent as of 5:32 p.m. local time, about 45 basis points more than the central bank’s benchmark rate.  

The ringgit has declined almost 8 per cent against the dollar this year, the worst performer among major Asian currencies. It weakened beyond 3.8 per dollar this week, the level at which it was fixed by former premier Mahathir Mohamad in 1998 to protect businesses. The peg was removed in 2005.