Malaysia's central bank left its benchmark Overnight Policy Rate (OPR) at 3.0 percent but struck a slightly more optimistic tone about the outlook for the country's exports based on an improved outlook for the global economy and comforted by better-than-expected third quarter growth.
Bank Negara Malaysia (BNM), which in July cut its rate for the first time since March 2009, said exports are expected to "expand" but still constrained by soft demand from Malaysia's key trading partners, a more optimistic view than in September when it said that "export growth is expected to remain weak following subdued demand" from its key trading partners.
BNM also said that the "risk of destabilizing financial imbalances has been contained" - an observation that was new in comparison to its September statement - and a reference to the shift in global financial markets since the U.S. Presidential election that triggered intervention in foreign currency markets by Malaysia and other Asian central banks.
On the global front, BNM said estimates for global growth in 2017 had improved, as the "prospect of a shift towards progressive use of fiscal policy in the developed economies could lead to a more balanced policy environment that would support growth going forward."
However, the central bank also cautioned of "uncertainty arising from risks of protectionism and financial market volatility," a clear reference to ideas by U.S. President-elect Donald Trump about changing global trade in favor of the U.S.
Malaysia's Gross Domestic Product grew by a better-than-expected annual rate of 4.3 percent in the third quarter of this year, up from 4.0 percent in the second quarter and reversing five quarters of decline.
Growth was supported by private sector activity and exports that grew 5.9 percent, up from a 7 percent drop in the second quarter.
BNM said the private sector will remain the driver of growth as consumption is sustained by wage and employment growth, along with support by government measures to raise income. Although investment is moderating, it will be supported by infrastructure investments and exports will expand but still be constrained by soft demand from trading partners.
Malaysia's inflation rate was steady at 1.5 percent in September from August and BNM expects it to be at the lower end of the 2.0-2.5 percent range forecast for this year, a slight change compared with its September statement when it forecast that it would be at the lower end of a 2-3 percent range.
Malaysia's ringgit, along with many other emerging market currencies, dropped sharply in the days following the election of Donald Trump, and the central bank said these "sharp adjustments and significant volatility" could result in periods of volatility in regional financial and foreign exchange markets.
"In this regard, Bank Negara Malaysia will continue to provide liquidity to ensure the orderly functioning of the domestic foreign exchange market," BNM said.
In the days following the U.S. election, the ringgit fell to levels against the U.S. dollar not seen in 12 years and remains weak. But it has been depreciating since mid-April and was trading at 4.44 to the dollar today, down from 4.18 on the day of the election but up from lows of 4.48 seen on Nov. 11.
Compared with the start of the year, the ringgit is down only 3.2 percent.
Bank Negara Malaysia issued the following statement:
"At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.