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Malaysia's central bank is prepared to use its policy levers if needed to foster a sustainable economic recovery after it kept its policy rate unchanged at 1.75% on Thursday.

The interest rate decision was largely expected, although there was a chance that Bank Negara Malaysia would cut rates in response to the impact of an extended nationwide lockdown due to a resurgence of the pandemic.

The bank cut its policy rate by 125 basis points last year but has held the rate steady since July 2020.

BNM's statement cited better than expected economic activity in the first quarter of this year and moderating inflation in the near term as positive factors in the economy, although it said the balance of risk remains "tilted to the downside".

"The degree of impact to the economy is highly dependence on the stringency and duration of containment measures," the BNM statement said.

BNM forecast headline inflation would average closer to the lower bound of the forecast range of 2.5% to 4% this year.

Monetary policy would continue to be driven by the inflation and growth outlooks, and BNM described its policy stance as "accommodative."

The central bank welcomed a recent fiscal support package from the Malaysian Government, which totaled USD36 billion, which it said would alleviate the burden on households and businesses.