Bank Negara holds key rate, upbeat on global growth

KUALA LUMPUR: Bank Negara Malaysia (BNM), leaving its key interest rate unchanged as expected on Thursday, struck a more upbeat tone on the country's and Asia's economic performance this year.
BNM kept the overnight policy rate (OPR) at 3.00% – where it has been since July 2016 – and gave no sign of a need to change the "accommodative" rate anytime soon.
"There was no hint of a potential rate hike in the near future," said Julia Goh, a UOB economist based in Kuala Lumpur.
In her view, there will be no rate change "at least until after the first quarter of 2018".
The central bank said growth in the global economy is "becoming more entrenched", wording BNM did not have in its last statement, on July 13, when it said growth continued to strengthen.
Asia's growth is driven by "sustained" economic activity and strong external demand, it added.
Malaysia's growth "will be stronger than earlier expected", BNM said, while inflation "continued its moderating trend".
"Underlying inflation, as measured by core inflation, will be sustained by the more robust domestic demand but is expected to remain contained," the central bank said.
All 11 economists polled by Reuters had predicted no change in policy on Thursday.
Faster pace
When inflation hit an eight-year high of 5.1% of March, some analysts predicted at least one rate hike in the second half of 2017.
But headline inflation slowed the following four months, easing to 3.2% in July. Meanwhile, exports and the economy have accelerated. Exports surged 31% in July.
Malaysia's economy expanded at a better-than-expected pace of 5.8% in the second quarter, on the back of domestic demand and robust exports. That took first half growth to 5.7%.
In August, BNM raised its full-year 2017 growth forecast to above 4.8%, instead of the 4.3% to 4.8% predicted in March. The economy expanded 4.2% in 2016.
On Thursday, the central bank said Malaysia's growth prospects "will be sustained by the more positive global growth outlook and stronger spillovers from the external sector to the domestic economy".
While BNM said there are signs of "sustained momentum in global growth", it said the outlook "may be affected by political and policy developments in major economies and geopolitical risks".
The ringgit has gained more than 5% against the dollar this year. BNM said the strengthening "better reflects" the economic fundamentals. — Reuters