Malaysia central bank holds key rate steady to support economic recovery

KUALA LUMPUR: Malaysia's central bank kept its benchmark interest rate unchanged on Wednesday, as expected, to support a steady recovery as the economy gradually reopens amid high COVID-19 vaccination rates.

Bank Negara Malaysia (BNM) held its overnight policy rate steady at a record low of 1.75%, as predicted by all of 22 economists polled by Reuters.

The Southeast Asian country has been in various stages of lockdown since May due to the spread of the more infectious Delta variant, but has gradually eased restrictions since July.

Daily new cases have dropped significantly in recent weeks, with about three-quarters of Malaysia's 32 million population now fully vaccinated, government statistics show.

"Going into 2022, the growth momentum is expected to improve, supported by expansion in global demand, higher private sector expenditure in line with the resumption of economic activity and continued policy support," BNM said.

Risks remain, however, including weaker-than-expected global growth, a worsening in supply chain disruptions, and new COVID-19 variants of concern, it said.

In August, the central bank cut its 2021 growth forecast for a second time due to the earlier anti-virus restrictions. It expects the economy to grow 3-4%, after it contracted by 5.6% in 2020.

Next year, the economy is expected to expand 5.5% to 6.5%, as more activities resume and external demand improves.

Last week, the government announced its largest-ever budget to jump-start the economy, promising more development spending, subsidies and cash aid to drive growth in 2022.

Malaysia has so far rolled out 530 billion ringgit ($127.62 billion) worth of stimulus and aid packages.

Economists polled by Reuters expect the central bank to hold rates steady until at least mid-2022. Median forecasts showed the first hike, of 25 basis points, would not come until the third quarter of next year.

Headline inflation was projected to remain moderate next year, after likely coming in between 2%-3% in 2021, BNM said.