BNM to keep rates steady on Thursday, may cut later

KUALA LUMPUR: Malaysia's central bank is expected to hold its benchmark policy rate steady at a meeting on Thursday as inflationary pressures and currency risks are contained.

All 16 economists in a Reuters poll predicted that Bank Negara Malaysia will keep its overnight policy rate steady at 3.25 percent. They see the stance being in line with the central bank's assessment of the economy.

Most economists also said the central bank was likely to keep interest rates steady for the rest of the year as economic growth was expected to remain healthy.

"As long as Malaysia's growth, especially in the second quarter remains above 4.5 percent, the central bank will leave rates unchanged," said Alan Tan, economist at AffinHwang.

While neighbouring countries have recently loosened policy to support slowing economic growth amid falling inflation, Malaysia remains wary about capital outflows.

Bank Negara last revised rates in July 2014, when it raised the policy rate to 3.25 percent from 3 percent.

Economists had initially penciled in another 25-basis-point rise before the unexpected slump in global oil prices.

The Southeast Asian country, a net oil and commodities exporter, has seen its current account surplus shrink and pressure build on its fiscal deficit from falling oil and commodities prices, depressing the ringgit.

The ringgit is emerging Asia's second-worst performing currency so far this year and is vulnerable to portfolio selling.

On the brighter side, inflationary pressures have subsided on lower oil prices although it could edge up in April when a consumption tax kicks in. Pressure on the country's foreign reserves, which have fallen by $26.4 billion since September 2014, are also showing signs of easing.

Central bank Governor Zeti Akhtar Aziz recently dismissed the need for any change to interest rates, noting the economy was "on a steady growth path", but several economists expect a case for lower rates later this year when data may show markedly slower growth. 

"It won't show in the first quarter but in the third or fourth quarter, growth would slow down and it'll be more visible," said Chua Hak Bin, economist at Bank of America Merrill Lynch, adding it depends on the indicators.

Malaysia's exports are set for a third straight month of contraction in March, a Reuters poll showed.

"Growth will likely slow on weaker consumer spending, investments and exports," Bank of America Merrill Lynch said in a research report.

HSBC expects growth to come in at the lower end of the official forecast range of 4.5 to 5.5 percent this year.-Reuters