Malaysia's central bank holds rates, expects vaccination, reopening to fuel recovery

Bank Negara Malaysia (BNM) held its overnight policy rate steady at a record low of 1.75%, after having cut them by a total of 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.

But the central bank said the risks to growth were tilted to the downside, including from any potential delays in plans to ease restrictions due to new variants and the possibility of a weaker-than-expected recovery in the global economy.

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.

While the country has the highest per-capita coronavirus caseload in Southeast Asia, having reported a total of more than 1.9 million COVID-19 infections, it also has the highest vaccination rate in the region. Half of its 32 million population were fully vaccinated as of Wednesday.

Malaysia's economy grew faster than expected in the second quarter of this year, but the central bank last month cut its 2021 growth forecast for the second time this year, expecting the economy to expand 3-4%, down from 6-7.5% previously.

The economy shrank 5.6% in 2020, its worst performance in more than two decades.

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