The Malaysian central bank will maintain the key interest rate the same at 2.75% for the third consecutive meeting next week, and for the remainder of the year.

This is according to the results of a Reuters poll of economists, as inflation has cooled down faster than forecast.

As inflation hit a 4.7% peak in August, it fell to a nine-month low of 3.4% in March, moving closer to the top end of the central bank’s target band of between 2% and 3%. 

More than 80% of the economists who took part in the Reuters news agency survey earlier this week forecast Bank Negara Malaysia (BNM) to hold the overnight policy rate the same at 2.75% at next Wednesday’s meeting. Whereas the remainder expect an increase of 25 basis points.

“Malaysia's moderating inflation path, as seen from the slowdown in both headline and core inflation for March, should be a relief to policymakers, even though inflation remains elevated vs. history,” said DBS economist, Chua Han Teng. 

“We expect Malaysia's economic growth to slow in 2023 amid global external headwinds, and therefore, BNM being cognizant of downside risks, would also aim to keep the monetary policy stance supportive of growth.”

The economic growth rate in Malaysia was forecast to more than halve to 4.0% in 2023 from 2022’s 8.7% figure, and recover only slightly to 4.6% in 2024, according to the findings from a separate Reuters survey. This could dissuade the central bank from imposing additional rate hikes.

Although the average forecast revealed rates would remain the same until at least the end of next year, 9 out of 22 economists forecast at least one more hike in 2023.

“Backed by sticky core inflationary pressures, still positive domestic growth momentum and domestic financial stability, we continue to see room for Bank Negara Malaysia to further normalise its monetary policy back to pre-pandemic level,” according to Julia Goh, senior economist at UOB.