MNI STATE OF PLAY: Malaysian Cenbank To Monitor Fiscal Boost

A sluggish economy under nationwide lockdown since June is likely to prompt Bank Negara Malaysia to consider its first rate cut in a year in at its meeting this week, but it may prefer to leave policy settings unchanged whilst it monitors the effect of a new government fiscal package.

The lockdown has added to gloom since gross domestic product fell by 0.5% in the first quarter, after declining by 5.6% over 2020, prompting the government to announce USD36 billion in fresh spending. BNM may decide to wait for this to take effect, and hope for a lifting of the lockdowns before new policy moves.

Like other regional central banks in Indonesia and Thailand, BNM has limited rates firepower left, relying on more targeted measures and also looking to fiscal spending.

Bank Negara Malaysia cut its policy rate by 125 basis points last year but has held it at 1.75% since July 2020.

Inflation could also be a factor in keeping rates on hold. Consumer prices jumped an annual 4.4% in May, higher than BNM's projection of 2.5% to 4% this year, though inflation is expected to slow in the second half of the year,

After strengthening close to 4 to the U.S. dollar in January, the Malaysian ringgit has weakened to around 4.16. BNM's decision is expected late on Thursday in Kuala Lumpur.