By Ying Xian Wong


Malaysia's central bank held its benchmark interest rate unchanged again, extending its policy pause to a year as it keeps a watchful eye on growth and inflation.

Bank Negara Malaysia kept its overnight policy rate at 3.00% on Thursday. That's the same level as in May last year, when the bank delivered a surprise rate hike.

Thursday's decision was expected by all seven economists polled by The Wall Street Journal, keeping the Malaysian central bank in the same camp as many central banks in Asia that have held policy settings steady as they look to balance supporting economic growth against inflationary and currency pressures.

Bank Negara reiterated that its policy stance remains supportive of the economy and gave an upbeat view of Malaysia's economic prospects.

"The latest indicators point towards higher economic activity in the first quarter of 2024, driven by resilient domestic expenditure and a positive turnaround in exports," it said.

Bank Negara expects the recovery in exports to gather momentum, backed by the global technology upcycle.

"Tourist arrivals and spending are also poised to rise further," it said, with continued growth in both employment and wages supporting household spending.

The central bank expects inflation to remain moderate this year, reflecting stable demand and contained cost pressures. However, much of the inflation story for 2024 will depend on how the winding back of subsidies and price controls for key items like fuel plays out.

Bank Negara said it expects headline and core inflation to average between 2.0%-3.5% and 2.0%-3.0% this year, respectively.

Indonesia's central bank has been an outlier in Asia, delivering an unexpected rate hike in April as it sought to support a tumbling rupiah and guard against global risks. But most analysts think Malaysia is unlikely to follow suit any time soon.

While the ringgit's depreciation is a concern for Bank Negara, unlike its Indonesian counterpart it doesn't have a mandate for currency stability, Capital Economics said in a note.

The Malaysian bank will also be reassured by the fact that the ringgit has bounced back over the past week and has been outperforming its regional peers, assistant economist Ankita Amajuri said.

The ringgit's slump against the dollar had drawn concern from BNM earlier in the year. Officials have made coordinated efforts to support the currency but maintain that its drop doesn't reflect Malaysia's economic strength and growth prospects. The central bank repeated this line again on Thursday, saying it will continue to manage risks stemming from financial market volatility.

It expects domestic structural reforms to provide more enduring support to the ringgit.

A rate cut isn't likely on the horizon either for Malaysia's central bank.

Many analysts say central banks in Asia will be reluctant to cut ahead of the Federal Reserve and risk stoking currency pressure. Pushed-back expectations of the start of the U.S. easing cycle have led to anticipated delays for the start of rate cuts in much of Asia.

Capital Economics' Amajuri thinks BNM will tread cautiously because of the uncertainty in the inflation outlook. CE expects inflation to top 3% by mid-year, above what it considers to be the central bank's "comfort zone."

Bank Negara has recently affirmed its data-dependent stance as it awaits more details on government subsidy cuts, which could spark inflation, CIMB economists Michelle Chia and Lim Yee Ping said in a note this week.

"The bottom line for us is that BNM remains comfortable with current monetary policy settings, as growth is expected to improve with inflationary pressures manageable," OCBC senior economist Lavanya Venkateswaran said.

With inflation staying benign and economic growth steady, there's seemingly little urgency for the bank to come off the sidelines.


--Fabiana Negrin Ochoa contributed to this report


Write to Ying Xian Wong at yingxian.wong@wsj.com


(END) Dow Jones Newswires

05-09-24 0506ET