Bank Negara holds key rate at 3%, says economy improving

KUALA LUMPUR • Malaysia's central bank kept its key rate unchanged yesterday as expected, and expressed optimism that the better growth momentum seen in late 2016 can be sustained through this year.

Most economists predicted that the key rate will remain at 3 per cent for the rest of this year, especially if rates in the United States rise as expected.

Bank Negara Malaysia (BNM) said the current overnight rate is "accommodative and supportive of economic activity", which will be helped by a "slightly faster pace" of global economic expansion this year.

Ms Julia Goh, an economist at United Overseas Bank, said BNM is "sending a neutral signal on monetary policy, suggesting that they are unlikely to change interest rates at least this year".

Trade-reliant Malaysia saw economic growth rates decline for five quarters due to poor commodity prices, before improving in the second half of last year.

BNM said that the ringgit - which hit a near 19-year low of 4.4980 to the US dollar on Jan 4 - has "continued to stabilise" along with other emerging market currencies. The ringgit was at 4.448 yesterday, leaving it 1 per cent stronger this year but still down 12.8 per cent from July when the central bank cut its key rate by 25 basis points - the first cut in more than seven years.

Against the Singapore dollar, it was trading at 3.1570.

A second cut was widely expected shortly afterwards, but the bank held off as the ringgit faced pressure, especially towards the end of last year.

After slowing for five quarters, Malaysia's economy had annual growth of 4.3 per cent in the July-September period and 4.5 per cent in the October-December period. Full-year 2016 growth was 4.2 per cent, the slowest since 2009, when the economy contracted.

While the growth outlook has improved, "nevertheless, there remain risks to global growth arising from threats such as protectionism, geopolitical developments, heightened volatility of financial markets and negative developments in the prices of key commodities", BNM said.

Last October, Prime Minister Najib Razak said growth this year would likely be 4 per cent to 5 per cent.


A version of this article appeared in the print edition of The Straits Times on March 03, 2017, with the headline 'Bank Negara holds key rate at 3%, says economy improving'. Print Edition | Subscribe