Malaysian central bank keeps its key rate steady

KUALA LUMPUR: Malaysia’s central bank kept its benchmark interest rate steady at a record low yesterday on expectations a recently launched Covid-19 vaccination programme will help boost consumer and business sentiment, underpinning an economic recovery.

Bank Negara Malaysia (BNM) left its overnight policy rate unchanged at 1.75%, as forecast by a majority in a Reuters poll.

It said its monetary stance was “appropriate and accommodative” after the central bank cut rates by a total of 125 basis points last year.

While coronavirus curbs imposed in January would “affect” first quarter growth, the central bank said it expected a pick-up from the second quarter thanks to a rebound in global demand, increased public and private sector spending and continued support from policy measures.

“The roll-out of the domestic Covid-19 vaccine programme will also lift sentiments and economic activity,” BNM said.

The decision to hold interest rates for a fourth straight meeting comes as Malaysia’s economy shrank 5.6% in 2020, suffering its biggest full-year contraction since the Asian Financial Crisis in 1998.

But BNM added that the growth outlook remained subject to “downside risks” mainly from uncertainties around the pandemic and potential challenges with vaccine roll-outs.

“The bank remains committed to utilise its policy levers as appropriate.”

Malaysia’s economy is expected to rebound this year as infection rates slow amid a vaccination programme aiming to inoculate at least 80% of the country’s 32 million people by early next year.

The government in January also announced 15 billion ringgit ($3.70 billion) worth of additional stimulus measures to support the economy after 305 billion ringgit in stimulus packages last year.

But Capital Economics said the country’s high infection rate and the “slow start” to its vaccination rollout could overshadow the recovery, also expecting a slowdown in export growth.

At over 300,000, Malaysia has the highest coronavirus caseload in Southeast Asia after Indonesia and the Philippines.

“Given that the bank decided not to cut rates today despite the poor outlook for the economy, further easing now looks unlikely,” said Alex Holmes, Asia economist at Capital Economics.

But he added: “With the economic recovery likely to be slow and fitful, policy is set to remain very loose for some time to come.”

The government in November had forecast the economy would rebound and grow 6.5-7.5% in 2021.

Finance Minister Tengku Zafrul Abdul Aziz said in February that the country was on track to achieve this, according to local media.