Malaysia Holds Interest Rate at 3% as Economic Outlook Improves

Malaysia’s central bank left its benchmark interest rate unchanged, as expected, as economic growth strengthens and inflation moderates.

• “The global economy continues to strengthen with growth becoming more entrenched and synchronised across countries,” the central bank said in a statement on Thursday after keeping its key rate at 3 percent. All 21 economists in a Bloomberg survey predicted the decision
• Monetary Policy Committee said growth in 2017 will be stronger than earlier expected
• Headline inflation is forecast to moderate; it has slowed every month since reaching an eight-year high in March

The Backdrop

Bank Negara Malaysia is facing a better economic outlook this year as a global trade recovery spurs exports and price pressures ease, enabling it to keep monetary policy unchanged since a surprise rate cut in July last year. Economic growth has surpassed economists’ expectations for four quarters, while the currency is heading for its first annual gain in five years.

Speculation is starting to mount on whether the central bank may need to tighten monetary policy to ward off any inflation threats as growth picks up. But global uncertainty, a looming election and financial stability risks may give policy makers reason to hold off for now. Malaysia’s household debt of about 88 percent of gross domestic product is among the highest in the region, according to the central bank.