24-1-2024 (KUALA LUMPUR) Bank Negara Malaysia (BNM), Malaysia’s central bank, decided to keep its benchmark interest rate unchanged at 3.00 percent during its first meeting of the year on Wednesday. This marks the fourth consecutive meeting where rates remain steady, aligning with market expectations that rates will be maintained until at least the end of 2025. The move aims to support economic growth as the country anticipates an increase in inflation following planned subsidy changes.
In a statement, BNM highlighted that preliminary estimates indicate Malaysia’s economy expanded as anticipated last year. Furthermore, growth is expected to improve in 2024, driven by a recovery in exports and resilient domestic expenditure. However, the central bank emphasized that the growth outlook remains exposed to downside risks, primarily stemming from weaker-than-expected external demand and potential declines in commodity production.
According to Malaysia’s statistics department, the economy is projected to grow by 3.8 percent in 2023. This figure falls short of the government’s initial forecast of a 4 percent expansion, with exports continuing to experience sluggishness. Both the government and BNM anticipate economic growth between 4 percent and 5 percent for the current year.
Inflation in Malaysia has shown a recent decline, with headline and core inflation averaging 2.5 percent and 3.0 percent, respectively, in the fourth quarter. The consumer price index rose by 1.5 percent in December, maintaining its slowest pace since March 2021, according to data released earlier this week. BNM expects inflation to remain modest in 2024.
However, the government’s plan to review price controls and fuel subsidies in the upcoming year is anticipated to impact the inflation outlook and demand conditions. BNM will closely monitor the effects of these subsidy changes on overall inflation, stated Mohamad Afzanizam Abdul Rashid, the chief economist at Bank Muamalat Malaysia.
While there are concerns regarding the potential impact of fuel price rationalization, Oxford Economics downplayed the risks, suggesting that it will likely be a gradual process starting in the second half of the year.
“With both growth and inflation set to continue slowing, we see an increasing possibility that BNM might decide to loosen monetary policy in the coming quarters,” noted Alex Holmes, the lead economist at Oxford Economics, in a research note.
