Malaysia’s c.bank seen holding rate as markets watch for new governor

KUALA LUMPUR (March 8):

 

All 11 economists in a Reuters poll expect Bank Negara Malaysia (BNM) to maintain the overnight policy rate at 3.25%, where it has stayed since July 2014.

They note that Malaysia had better-than-expected growth in the last quarter of 2015, and see no need to change the key rate at this point.

Wednesday’s meeting will be the last for Governor Zeti Akhtar Aziz, who retires on April 30 after 16 years at the helm.

Rather than the rate decision, “what likely matters more for markets near-term will be the appointment of Governor Zeti’s successor,” Bank of America Merrill Lynch (BoAML) economist Chua Hak Bin said in a research note.

There has not been any indication of who will succeed Zeti. BNM will make a recommendation to Prime Minister Najib Razak’s government, which will decide what name to submit to Malaysia’s king for formal appointment.

For months, Najib has faced calls to resign over a financial scandal tied to state-owned fund 1Malaysia Development Bhd (1MDB) and about US$681 million deposited into his personal bank account.

Zeti’s exit has raised concerns about whether her successor will be independent and competent, and continue to follow similar policies.

NO NEED TO CHANGE

UOB Bank Malaysia economist Julia Goh said she believes the central bank will avoid any drastic policy change regardless of who takes over, in order to sustain market confidence.

At present, “markets are very much focused on who will be the new governor,” Goh said, adding “we should still be watching the data”.

To economists, the data indicates no need to change the policy rate. Chua of BoAML said he expects no change for the rest of 2016, noting that pressures on the ringgit have diminished.

This year, the ringgit has strengthened about 4.6% against the dollar. In 2015, it was Asia’s worst performing currency, shedding 18.5% against the dollar.

In October–December, Malaysia’s economy expanded 4.5% from a year earlier, faster than forecast. Compared with the previous quarter, the country’s current account surplus doubled to RM11.4 billion (US$2.78 billion).

Southeast Asia’s third-largest economy grew 5% in 2015, slowing from 6% in 2014. In January, Najib cut this year’s forecast to 4%–4.5% from 4%–5%.

 

http://www.theedgemarkets.com/en/node/264143