Malaysia’s policy rate to remain unchanged


The central bank is unlikely to change interest rates based on Malaysia’s better than expected economic growth in the fourth quarter last year (4Q18), which are largely driven by domestic activities.

Standard Chartered Global Research (StanChart) in its latest economic report said the 4Q18 GDP growth was sustained by private consumption.

“Malaysia’s economy expanded 4.7% year-on-year (YoY) in the 4Q, better than the consensus expectations of 4.5%.

“Sustained strength in private consumption and a rebound in mining sector activity (on resumption in production capacity, following supply outages and pipeline repairs which weighed on 2Q and 3Q growth) supported 4Q GDP growth,” the bank said.

“Private consumption was the primary driver of 2018 growth, accounting for circa 92% of GDP growth. Meanwhile, private investment contribution to 2018 growth moderated to 0.8 percentage points from 1.6 percentage points in 2017 due to high base effects.

“Public sector investment contracted further on reduced capital spending. While net exports contributed to 2018 growth, this was mainly due to lower capital goods imports,” the bank said.

StanChart also said two one-off factors may help despite foreseeing growth headwinds in 2019.

“Consumer spending — the main driver of growth in 2018 — faces a high base effect, still-elevated household leverage and a slowing property market. Net external demand may also be less supportive amid slower growth in major economies.

“However, two one-off factors may help: i) Goods and Services Tax and income tax refunds; and ii) a rebound in mining activity,” the bank said.

“We maintain our call for no change in policy rates as Bank Negara Malaysia (BNM) remains comfortable on domestic activity.

“Risks (highest in the 1Q on unfavourable base effects) are tilted towards a rate cut if external demand weakens and weighs on domestic activity,” the bank said.

BNM governor Datuk Nor Shamsiah Mohd Yunus deemed the full-year growth as “highly respectable”.

“It was always our baseline case that 2018 will be a year when the economy will moderate from the exceptional performance in 2017,” Nor Shamsiah said at the media briefing.

The economy, she said, was impacted by unanticipated one-off factors like supply disruption of natural gas and low crude palm oil prices, besides a brief period of uncertainty following the 14th General Election.

The country’s GDP growth for last year was slightly below the central bank’s prior forecast of 4.8%, but higher than earlier analysts forecast of about 4.5%.

Malaysia’s economy rose by 4.7% in 4Q18, ending four quarters of slipping growth as the services and net exports helped to allay fear of the country’s future economic prospects.

Last month, StanChart said Malaysia’s GDP is expected to grow 4.9% this year despite the slower global growth projected which could be attributed to the forecast growth in the manufacturing (4.8%) and electricity sectors (3.7%). However, the mining sector declined by 1.9%.

StanChart chief economist for Asean and South Asia Edward Lee (picture) said the tax rebate amounting to some 2.5% of the country’s GDP and the potential recovery from the mining supply disruption would provide a small boost to the economy.

He added that the resumption of production capacity in the mining sector, which was disrupted by unplanned outages and pipeline repairs (according to the central bank), may also contribute to the growth in 2019.

Lee also said without such one-off factors, he expects the GDP growth level to be slow, around 4.4%-4.5%, from 4.7% last year.