Malaysia: Bank Negara Leaves Rates Unchanged; Lower April Inflation Helped but Higher Power Tariffs May Push Rate Up; Gdp and Myr Concerns May Also Have Affected Decision

Summary

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Bank Negara kept its main interest rate steady at 3.50% at its 22 May policy meeting, citing limited demand-led price pressures or oil price knock-on effects. It wants to gauge the effect of the previous three hikes. The markets had been evenly split in their expectations on rates but may well now expect a hike in July. The bank's decision was aided slightly by the CPI data. After the big spike in March inflation to a seven-year peak of 4.8% caused by the end-February fuel price hike, prices were unchanged on the month in April and the headline rate eased back a fraction more than expected to 4.6%. Easier food price inflation again offset the steep rise in transport costs but there is still a risk that the government will at some point allow dominant power generator Tenaga to raise its tariffs that have been frozen for a decade. If that point is delayed, there is reasonable chance that full year inflation will hold at 4% (or slightly less), the average rate after the first four months. Another reason for holding rates may be slight fears for the domestic economy. The delay in releasing Q1 GDP data makes the situation hard to assess. Q1 manufacturing sales were weak but that may mean little. The MYR also enters into the equation. Some may have seen weak March export growth as a signal that the MYR has risen far enough, albeit the move is helping calm import price inflation.

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Malaysia: Bank Negara Leaves Rates Unchanged; Lower April Inflation Helped but Higher Power Tariffs May Push Rate Up; Gdp and Myr Concerns May Also Have Affected Decision

Bank Negara holds rates steady after recent rises

The central Bank Negara left its key overnight policy rate (OPR) unchanged at 3.50% at a regular meeting on 22 May, in effect pausing to gauge the impact of the three rate rises totalling 80 basis points since last November, the last rise (by 25 basis points) coming on 26 April. The bank noted the strong impact of higher world oil and commodity prices and said "Malaysia is not insulated from the inflationary forces being felt globally. However, at this stage, limited evidence of second-round effects and t...

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