Malaysia central banker sees rate hold in 2024, growth at 5%

MALAYSIA’S resilient economy and contained price pressures should allow it to keep interest rates unchanged for the rest of the year, even as global central banks pivot towards easing, according to Bank Negara Malaysia’s deputy governor.

Malaysia’s economy is on track to grow around 5 per cent in 2024 while inflation will not exceed 3 per cent, Adnan Zaylani Mohamad Zahid said in a Bloomberg Television interview with Rosalind Mathieson on Monday (Sep 9). That puts it within the official forecasts laid out by the central bank earlier this year.

“There’s no real compelling reason or any pressure on interest rates to move in either direction at this stage, though we have to be open to consider the risks going forward,” the deputy governor said in London.

The neutral stance sets Malaysia apart from its South-east Asian peers as the US Federal Reserve prepares to cut interest rates. BNM last adjusted its overnight policy rate in May 2023, capping a yearlong tightening cycle that saw it raising rates by a total 125 basis points to 3 per cent. Elsewhere in the region, the Philippines reduced borrowing costs from a 17-year high last month while Indonesia and Thailand have signalled openness to loosen monetary settings.

Malaysia’s rate path next year is less clear, with “still a lot of factors that could come into play,” particularly on inflation, according to Adnan. The central bank is on the lookout for domestic policy changes that could have an impact on the nation’s growth and inflation outlook, he said.

BNM has reason to stay cautious about prematurely easing monetary policy. Price pressures risk flaring up if Prime Minister Anwar Ibrahim proceeds with an earlier pledge to end blanket subsidies for the country’s most widely-used petrol, a move that is key to bolstering government finances. Anwar, who doubles as finance minister, has yet to commit to a timeline for the move, with analysts increasingly expecting it to be delayed to end-2024, at the earliest.

Regardless of what measures it takes, the government is expected to meet its fiscal deficit target of 4.3 per cent of gross domestic product this year, and possibly around 3 to 3.5 per cent in 2025, said Adnan.

It’s a commitment that the central bank takes comfort in as it would help to strengthen Malaysia’s economic fundamentals, he said. And the ringgit’s level should reflect that, he added.

The Malaysian currency rose 0.3 per cent in early Kuala Lumpur trading on Tuesday, outpacing all of its emerging-market peers.

The currency has recovered from a 26-year low against the US dollar reached in February, emerging as the top gainer across developing markets this year. This is in part due to coordinated measures by the government and central bank to encourage corporates to repatriate their overseas income – something they will continue to do even though the “ringgit has already regained its footing and recovered quite well,” said Adnan.

On the external front, Malaysia is set to weather any slowdown in China – its largest trading partner – or the risk of a global trade war, thanks to the South-east Asian nation’s diverse economy, Adnan said. Domestic factors have also helped to bolster growth, he said.

The deputy governor is in London to attend a forum on Tuesday co-organised by BNM and the Malaysia International Islamic Financial Centre Leadership Council to promote the growth of Islamic finance in the world’s largest sukuk market.

BNM is seeking to lure investors into the country’s Islamic bond market, which stands at about US$260 billion, by positioning it as a “green and sustainable investment,” Adnan said.

Potential backlash against ESG is on BNM’s radar, but is “not something that we’re terribly concerned about at this stage,” he said. BNM will ensure the strategies it supports are sustainable and transparent, he added.

Malaysia is seeing growing interest in Islamic finance and is hoping to build linkages beyond the Gulf Arab countries to include the UK as well as emerging African nations. BLOOMBERG