KUALA LUMPUR: Bank Negara Malaysia has made a sound judgement in maintaining its overnight policy rate (OPR) to support economic growth and financial stability amid volatile external environment, economists said.
The decision to keep the OPR steady at 3.00 per cent should boost market confidence and stability, they added.
Malaysian University of Science and Technology economist Geoffrey Williams said Bank Negara has followed the right policy and been effective in bringing down headline inflation and supporting underlying growth and financial stability in the difficult global economic landscape.
"It will add confidence to the markets that Bank Negara is sticking to its mandate and that economic growth in the coming year will not be harmed by higher interest rates," he told Business Times today.
Williams said the decision should be a relief to borrowers given that the costs of borrowing will not be higher.
"It will also support consumer spending which is good when external factors are difficult. This will be supportive of growth and investment overall and will support growth and help keep down inflation because real interest rates are now positive with inflation below the OPR," he added.
On the ringgit, Williams said the United States Federal Open Market Committee's (FOMC) decision to keep the Fed Fund Rate steady has already had a positive effect on the ringgit. The local unit now traded at 4.75 vis-a-vis the US dollar today compared to RM4.79 two days ago.
He believes that this shows that confidence, clarity and consistency in policy is more important than interest rate differentials.
"Nothing further needs to be done because there is no change. We can expect interest rates to remain stable for the foreseeable future now which is good," he said.
Bank Muamalat Malaysia Bhd chief economist and social finance head Dr Mohd Afzanizam Abdul Rashid said the Bank Negara decision has been widely anticipated.
In that sense, he said the communication from the central bank since the last meeting in September is quite clear, which is good for managing expectations among the general public.
Furthermore, lower inflation print of 1.9 per cent in September from as high as 4.7 per cent in August 2022 suggests that Bank Negara has demonstrated its credibility in managing the country's monetary policy which is good for confidence building.
The total OPR hike of 125 basis points since May last year indicates that Bank Negara has built its policy space, Afzanizam added.
This will allow policy flexibility for Bank Negara in dealing with the potential risks of economic slowdown in 2024 and beyond.
"The Fed decision on interest rates has significant bearing to the ringgit. Judging from the FOMC decision last night, the Fed has become concerned over tighter financial and credit conditions which will have an impact on businesses and households. As such, the risks of further interest rate hike appear to diminish," he added.
Bank Negara's Monetary Policy Committee (MPC) decided on Thursday to keep the OPR unchanged as it expected growth to expand, driven by domestic demand amid strong labour market conditions.
The MPC had only one rate hike of 25 basis points this year in May.
At the current OPR level, the central bank said the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.
"The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth," it added.