BNM seen holding key rate on moderating core inflation

KUALA LUMPUR: Malaysia’s central bank is expected to leave its benchamrk interest rate unchanged at a policy meeting on Thursday, a day after the country holds a general election, a Reuters poll showed.

Eleven economists polled by Reuters were unanimous in expecting Bank Negara Malaysia (BNM) to hold its overnight policy rate at 3.25%, as core and headline inflation moderated during the first quarter of 2018.

In power since 2009, Prime Minister Datuk Seri Najib Abdul Razak is expected to hold off an unprecedented challenge from an opposition led by Tun Dr Mahathir Mohamad, his one-time mentor who led Malaysia for more than two decades.

Mahathir has said that he would support jailed opposition leader Anwar Ibrahim to become Malaysia’s next prime minister if Najib’s Barisan Nasional coalition is defeated in tomorrow’s election.

In January, the central bank raised its benchmark rate for the first time since July 2014, in a bid to “normalise” policy ahead of the election.

“In fact, core inflation decelerated to 1.7% year-on-year, implying that there is no immediate need for BNM to tweak the policy rate,” HSBC said in a note to clients.

Malaysia’s headline inflation rose 1.3% from a year earlier in March, its slowest pace in nearly two years.

Full-year inflation came in at 3.7% in 2017.

The central bank has said it expects inflation to ease in 2018. In its last monetary policy committee meeting in March, the central bank said its policy stance will ensure the domestic economy “continues on a steady growth path amid lower inflation”.

Standard Chartered said the central bank will likely hold its key rate for the rest of the year due to moderating growth and as core inflation remains contained.

Growth will likely ease to 5.3% in 2018, lower than BNM’s projection of 5.56%, Standard Chartered said in a note.

“Risks to our status quo call include unexpectedly strong global trade and/or a rising core inflation trend,” the note read. – Reuters