Malaysia's central bank seen holding key rate as vaccine rollout fuels recovery hopes - Reuters poll

KUALA LUMPUR: Malaysia's central bank is likely to leave its key interest rate unchanged this week, a Reuters poll showed on Tuesday, as the country gradually reopens its economy amid a ramped-up COVID-19 vaccination drive.

While Malaysia's downgrade to its 2021 growth outlook last month fuelled market speculation of another rate cut, analysts said rising vaccination rates and continued strong external demand should support the economic recovery.

All 22 economists surveyed by Reuters saw Bank Negara Malaysia (BNM) keeping its overnight policy rate steady at 1.75% on Thursday. Last year, the central bank cut its benchmark rate by 125 basis points.

"Continued rapid progress on the vaccine rollout... mean there should be no need to resort to lockdowns in future," said Alex Holmes, economist at Capital Economics.

"Meanwhile, fiscal policy is likely to remain supportive... All told, we think rates will be left unchanged."

Malaysia's economy grew faster than expected in the second quarter of 2021, rising 16.1% from a year ago, when it posted its worst contraction in over two decades due to COVID-19.

But it shrank on a quarterly basis as rising coronavirus infections and fresh lockdowns imposed since May weighed on output. Malaysia's central bank lowered its 2021 growth forecast to 3-4% from 6-7.5% last month.

The Southeast Asian nation has reported more than 1.8 million COVID-19 cases, the third-highest in the region after Indonesia and the Philippines, though new infections have slowed in recent days.

As of Monday, nearly half of the country's 32 million population were fully vaccinated, while restrictions have been slowly eased since early July.

Standard Chartered said the uneven state of economic activity may benefit more from targeted measures.

Malaysia has already rolled out hundreds of billions of ringgit in stimulus packages to help spur activity.

The government is set to unveil its 2022 budget next month, aimed at prioritising economic recovery and post-pandemic reforms.