PETALING JAYA: Bank Negara says the economy is on a sustainable growth path driven by resilient domestic expenditure and higher export activity.
With inflation contained at 1.8% year-to-date, the central bank left its overnight policy rate (OPR) unchanged at 3% at its final Monetary Policy Committee meeting for the year yesterday.
It stated at the current OPR level, monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.
Economists said Malaysia’s growth prospects remain bright and risks manageable should the incoming Donald Trump Presidency institute the proposed tariffs voiced at his pre-election speeches at rallies.
Trump had warned of 60% tariff on all Chinese imports to the United States as well as 10% to 20% tariffs on all trading partners should he be elected as president.
“Higher tariffs on China alone will impact Malaysia via slower demand from China, but there is a clear offset in terms of rising investments and further acceleration of ‘China +1’ policies,” OCBC Bank stated in a research note on the subject matter.
The bank added Malaysia’s well-diversified export base in terms of trading partners and products should enable the economy to absorb any tariffs imposed, which could shave off up to 0.9 percentage points of its baseline growth target while the 60% tariffs on China alone would modestly impact growth by 0.2 percentage points.
Edward Lee, chief economist and head of foreign exchange, Asean & South Asia at Standard Chartered said the economic outlook for Malaysia remains positive underpinned by domestic and external demand.
He also expects inflationary pressures to be muted from a possible rationalisation of the RON95 fuel subsidy next year.
“The front-loading of rate cuts in the United States and China’s stimulus measures are positive, along with expected further global monetary easing. The US election outcome may pose a risk, particularly on any negative tariff imposition on China and the region.
“The impact on inflation remains to be seen as it may depend on the technicalities of implementation (RON95 fuel rationalisation).
“But if we are just to assume a global oil price of US$80 a barrel and the impact does not affect 85% of people, the inflationary impact may be 0.3 percentage points (on an annualised basis),” he told StarBiz.
Unsurprisingly, AmBank Research expects Bank Negara to hold the OPR at 3% up till mid-2025 at least.
“We think inflation is likely to trend in the range of between 2.5% and 3% next year, aligning with official forecast of between 2% and 3.5% due to the planned RON95 subsidy rationalisation in mid-2025.
“For now, we believe the upside risk to inflation exceeds the downside, which will require different policy levers to adjust accordingly,” the bank stated in a report yesterday.
The central bank, in a statement, noted the ringgit’s exchange rate will be driven by external factors with the US election increasing volatility in the near term.
“The narrowing interest rate differentials between Malaysia and the advanced economies is positive for the ringgit.
“Malaysia’s favourable economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage flows, will continue to provide enduring support to the ringgit,” Bank Negara said.
