As inflation has showed signs of cooling.
While headline inflation eased to its lowest in a year in May at 2.8%, core inflation - which excludes volatile items - moderated only a bit to 3.5%, suggesting the central bank will hold its key rate higher for longer.
All but three of 25 economists polled between June 27 and July 3 forecast Bank Negara Malaysia will hold the policy rate steady at 3.00% - its pre-COVID pandemic level - at the end of the July 6 meeting, following a surprise hike in May."The 25 bp surprise hike in May marked the end of the tightening cycle... a slower trajectory of growth and retreating inflation will likely prompt BNM to stand pat for the remainder of 2023," noted Khoon Goh, head of Asia research at ANZ.
Median forecasts showed rates will remain unchanged at 3.00% until end-2023, with no one predicting a cut this year.With the U.S. Federal Reserve, the European Central Bank and the Bank of England still intent on raising rates to control inflation, the ringgit has lost nearly 6% against the dollar this year, declining more than its Southeast Asia peers.
A weaker currency and resulting higher inflation feeding through expensive imports may restrict BNM from cutting rates any time soon. Gareth Leather, senior Asia economist at Capital Economics, noted that while most central banks in the region were expected to cut rates over the coming year,"the BNM will remain on the sidelines". - Reuters
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