Malaysia’s Central Bank Maintains 3% Interest Rate Amid Ringgit Weakening: Economic Observer

Jakarta –

Malaysia’s central bank is maintaining its interest rate at 3% until 2024. This is done even though the ringgit currency is experiencing its worst weakening in the last 25 years.

Economic observer and Director of PT Laba Forexindo Berjangka, Ibrahim Assuaibi, explained that the Malaysian central bank took this decision considering that domestic inflation and the country’s growth prospects tend to be stable.

“There may be a feeling that BNM (Bank Negara Malaysia) needs to try and adjust the interest rate differential with the US or try and improve sentiment through a rate hike, which I think may not yet be their option,” Ibrahim told detikcomFriday (11/3/2023).

According to him, with inflation at 1.9% in September 2023, the lowest since March 2021 and far below the government’s estimate of 2.5-3% for this year, the country’s central bank has room to maintain its interest rates.

“According to a separate Reuters poll, Malaysia is expected to grow by 4% this year and 4.5% in 2024. Meanwhile inflation is expected to average 2.8% this year and 2.5% next year,” said Ibrahim.

“From BNM’s point of view, the three percent figure is relatively close to historical levels. This is a level that makes them quite comfortable considering the dynamics of their growth and inflation,” he added.

Even though there is no increase in interest rates, Ibrahim feels that the Malaysian central bank will not reduce its interest rate below 3%. This condition is not expected to change before the end of 2024.

Even so, Ibrahim explained that currently the ringgit is still the worst performing currency in Southeast Asia this year, which has slumped almost 8% against the US dollar.

It is known that until last October the Malaysian currency exchange rate had fallen to 4.8 ringgit per US dollar, the weakest level since January 1998. It is estimated that this weakening will continue until 2024, when the ringgit could reach the level of 5.1 per US dollar.

“The Ringgit currency could decline further by 5% to a record low of 5 ringgit per dollar. BNM needs a currency pegging policy to help ease price pressures,” said Ibrahim.

Pegging itself is a policy where the government or central bank sets a fixed exchange rate for its currency with foreign currencies to stabilize exchange rates between countries. Previously, this was done by neighboring countries during the 1998 crisis for seven years.

“For example, capital controls in September 1998 and then pegging the ringgit exchange rate at 3.8 per dollar. This policy was implemented until 2005. The IMF, which at that time called the ringgit peg a step backwards, later admitted that this was an ‘anchor of stability’ which helps economic recovery,” he explained.

(fdl/fdl)

2023-11-03 12:30:01
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