Bank Negara Malaysia (BNM) is expected to maintain its key interest rate at 3.00% through 2025, according to economists. The country’s inflation is at a stable 2.0%, but the Malaysian ringgit has seen a significant turnaround in recent weeks, becoming one of the strongest Asian currencies. This shift indicates that the central bank is unlikely to reduce rates in the near future to prevent currency depreciation and increased inflationary pressures.
With Malaysia’s GDP growing at a robust 5.9% in the last quarter, driven by strong household spending, exports, and investment, there is no immediate need for a rate cut. Inflation is projected to rise in the latter half of 2024, particularly due to uncertainties surrounding diesel subsidy reductions. The central bank is expected to monitor the situation closely before considering any changes to interest rates, as premature action could have unintended consequences.
Analysts believe that BNM is focused on maintaining price stability and supporting economic growth in the current environment. Recent policy decisions, such as the removal of diesel subsidies, have added complexity to the inflation outlook. The central bank is likely to adopt a cautious approach to rate adjustments to ensure that inflation remains manageable and that the economy remains on a sustainable growth path.
The appreciation of the Malaysian ringgit by 6% this year is largely attributed to expectations of interest rate cuts by the Federal Reserve, leading to a weaker U.S. dollar. This external factor has influenced the currency’s performance more than domestic economic conditions. As a result, a preemptive rate cut by BNM could lead to inflationary pressures and disrupt the current stability in the financial markets.
While the global economic landscape is evolving rapidly, Malaysia’s central bank is likely to maintain a steady stance on interest rates to support growth and manage inflation. By carefully assessing the domestic and external factors influencing the economy, BNM can make informed decisions that benefit the country in the long run. With a focus on stability and sustainability, Malaysia’s central bank is positioned to navigate the challenges ahead and ensure continued economic prosperity.