Malaysia Keeps Key Rate on Hold

At its May 8th, 2014 meeting, Bank Negara Malaysia left the overnight policy rate unchanged at 3 percent. The central bank cited firm growth prospects and stable inflation, but hinted it may need to tighten monetary policy in the near future to curb financial imbalances like rising household debt.

Statement by the Bank Negara Malaysia:

Global growth moderated in the first quarter with several key economies affected by weather-related and policy-induced factors. Looking ahead, the global economy is expected to remain on a path of gradual recovery. In Asia, the better external environment provides further support to growth amid continued expansion in domestic demand. Conditions in the international financial markets have also improved following gradual and orderly policy adjustments in the major advanced economies while the impact from geopolitical developments remains contained.

For Malaysia, latest indicators suggest that the domestic economy continued to register favourable performance in the first quarter. Going forward, growth will remain anchored by domestic demand with additional support from the improved external environment. Exports will continue to benefit from the recovery in the advanced economies and regional demand. Private sector spending is expected to remain robust. Investment activity is supported by broad-based capital spending, particularly in the manufacturing and services sectors. Private consumption will be underpinned by stable income growth and favourable labour market conditions. The prospects are therefore for the growth momentum to be sustained.

Inflation has stabilised in recent months amid the more favourable weather conditions and as the impact of the price adjustments for utilities and energy moderate.
Going forward, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors.

Amid the firm growth prospects and inflation remaining above its long-run average, there are signs of the continued build-up of financial imbalances. While the macro and micro prudential measures have had a moderating impact on the growth of household indebtedness, the current monetary and financial conditions could lead to a broader build up in economic and financial imbalances. Going forward, the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.

Malaysia Keeps Key Rate on Hold

Bank Negara Malaysia | Joana Taborda |
5/8/2014 11:57:46 AM