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Malaysia central bank holds rates as COVID-19 vaccination, reopening seen fuelling recovery

Malaysia central bank holds rates as COVID-19 vaccination, reopening seen fuelling recovery

A general view of the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia, Jul 31, 2019. (Photo: Reuters/Lim Huey Teng)

KUALA LUMPUR: Malaysia's central bank kept its benchmark interest rate unchanged on Thursday (Sep 9), expecting progress in the vaccination rate and the gradual easing of coronavirus restrictions to underpin growth.

Bank Negara Malaysia (BNM) held its overnight policy rate steady at a record low of 1.75 per cent, after having cut it by 125 basis points last year.

While Malaysia's downgrade to its 2021 growth outlook last month fuelled some market speculation of another rate cut, all 22 economists in a Reuters poll had expected rates to remain unchanged.

BNM said the reimposition of lockdown measures to curb a resurgence in COVID-19 cases had dampened the growth momentum, but the gradual lifting of restrictions would likely mitigate the economic fallout.

"Moving forward, the further easing of containment measures, rapid progress of the domestic vaccination programme and continued expansion in global demand will support the growth momentum going into 2022," it said.

The central bank, however, did say the risks to growth were tilted to the downside, noting risk factors included any potential delays to plans to ease restrictions or a weaker-than-expected global economic recovery.

Malaysia has been in various stages of lockdown since May due to the spread of the more infectious Delta variant, but has gradually eased some restrictions since July.

The economy expanded more quickly than expected on an annual basis in the April to June period but the central bank last month cut its 2021 growth forecast for the second time this year.

It expected the economy to grow 3 to 4 per cent, down from 6 to 7.5 per cent previously, and after posting a 5.6 per cent contraction in 2020.

Analysts said it would take a lot for the BNM to cut rates further from here.

"If months of lockdown resulting in the spectre of a technical recession do not move the needle now, it would probably take a manifestation of risks of much greater magnitude for BNM to be easing," said Wellian Wiranto, an economist at OCBC.

BNM also said earlier fiscal and financial measures will continue to soften the pandemic fallout on businesses and households.

The government has rolled out hundreds of billions of ringgit in pandemic stimulus since last year.

While Malaysia is grappling with the highest per-capita coronavirus caseload in Southeast Asia, it has one of the region's highest vaccination rates.

It has reported a total of more than 1.9 million COVID-19 infections since the pandemic started, while half of its 32 million population have been fully vaccinated, government statistics showed on Thursday.

Source: Reuters/ng

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