Bank Negara seen keeping key rate at 3%

Malaysia

KUALA LUMPUR: Malaysia's central bank is expected to keep its benchmark rate unchanged on Wednesday, as the country's economy is seen to be coping with global market volatility in the wake of Britain's June Brexit vote.

Less than two weeks after the vote, Bank Negara Malaysia (BNM) made its first rate cut in seven years, slashing the overnight policy rate by 25 basis points to 3.00 percent.

For Wednesday's decision, the first since the cut, 11 of 12 economists polled by Reuters forecast no change to the rate, as Malaysia's exports and domestic consumption remained resilient despite worries about the global economy.

"There have been more signs that the initial impact of Brexit has not been as severe as expected," said Brian Tan, Singapore-based economist for Nomura. "I don't think (BNM) sees an urgent need to follow-up on the cut in July."

Tan says a cut is more likely at BNM's next policy meeting on Nov. 23, when there could be a greater need to prop up growth as the government may tighten spending to keep this year's budget deficit close to the targeted 3.1 percent.

RESERVE-REQUIREMENT CHANGE?

Prime Minister Najib Razak announced a revised 2016 budget in January, trimming the year's growth projection to 4.0-4.5 percent from 4.0-5.0 percent.

For the second quarter, Malaysia reported annual growth of 4.0 percent.

Activity has been "quite moderate" in key sectors of Malaysia's economy but remains resilient enough that BNM can avoid another cut on Wednesday, said Shazma Juliana Abu Bakar, an economist with the research arm of Malaysian stockbroker TA Securities.

She said that if measures are needed to boost the economy, BNM might cut its statutory reserve requirement ratio (SRR).

In January, BNM unexpectedly cut the SRR to 3.5 percent from 4.0 percent to add liquidity to the banking system, in a bid to lift growth.

HSBC economist Lim Su Sian said the central bank might cut again on Wednesday, as slowing economic activity and "sharply" decelerating loan growth argue for another reduction, and low inflation provides "headroom" for it.

She noted that the central bank must use its "bullets sparingly, as excessive easing could spark capital outflows that could prove challenging for BNM to manage amidst thin FX reserves." - Reuters