Malaysia’s central bank is expected to keep its benchmark interest rate unchanged at a policy review on Thursday, as it keeps room for potential easing later should global growth fall sharply.
Nine out of 11 economists polled saw Bank Negara Malaysia (BNM) keeping its overnight policy rate MYINTR=ECI at 3.00%, after the country reported stronger-than-expected second quarter growth and a recovery in exports.
The other two in the poll expect the central bank to cut its key rate by 25 basis points to 2.75%.
Malaysia’s economy grew an annual 4.9% in the April-June period, quicker than forecast, on stronger consumer spending and palm oil production. It was the only nation in Southeast Asia to report an acceleration in growth from 2019’s first quarter.
Due to the Sino-U.S. trade war and other factors hurting global demand, there is concern about whether Malaysia can continue to have solid growth.
But the government’s decision to restart some mega-projects, along with sustained private consumption, should help “mitigate some downside growth pressure”, Standard Chartered said in a note on Friday.
“This should give BNM some room to calibrate its monetary policy response to any unexpected downside risks,” the bank said.
The biggest mega-project resumed by the government is for a “Belt and Road” rail line, at a reduced cost of $11 billion instead of the $20 billion expected before the plan was suspended in July 2018.
BNM cut its key rate in May, the first reduction since July 2016, and it has kept policy unchanged since then.
ING economist Prakash Sakpal said BNM may end up taking a more aggressive easing stance, as Malaysia is dependent on trade, which faces an increasingly challenging global environment.
Sakpal is one of the two dissidents in the poll who expect a 25 basis point cut on Thursday, and he expects one other cut at the last policy meeting in November, taking the rate to 2.50%.
“With persistently low inflation (0.3% year-to-date) – a trend which has a long way to run amid low commodity prices – the central bank will still be left with more policy space for the future,” Sakpal said in a note on Friday.