Bank Negara Governor Zeti bullish about Malaysia's stable monetary policy

Malaysia's low inflation rates, tame at 2.6%, and robust domestic sector expansion backs up claim.

The country is enjoying price stability owing to the government subsidy programme and the decisive monetary action taken by the central bank in 2010 to curb inflationary pressure. Sticky inflation looks like the least of Malaysia's concern and BNM has enough room to keep the Overnight Policy rate at the current 3.00% level for the rest of the year.

Here's more from the DBS Group Research:

Tame inflation and stable economic growth should pave the way for a stable monetary policy in Malaysia. Such a view has been highlighted by none other than Bank Negara Governor Zeti yesterday. She noted that “the current interest rate level is appropriate for the current condition” and that economic growth should come within the central bank’s forecast range of 4-5%. In addition, the Governor has also pointed out that “conditions on the inflation front has improved.” Indeed, today’s March CPI inflation should further buttress this point. Headline inflation is expected to read an increase of 2.3% YoY, more or less unchanged from the previous month.

Malaysia is in an exceptionally comfortable position as far as inflation is concerned. It currently enjoys one of the lowest inflation rates in region, thanks to the government subsidy programme as well as the decisive monetary action taken by the central bank in 2010 to curb inflationary pressure despite the risks from the Eurozone crisis. That has paid off in the form of price stability. While many regional countries are struggling with the sticky inflation and worries of inflation rearing its head again amid growth concerns, BNM has enough room to keep the Overnight Policy rate at the current 3.00% level for the rest of the year. Inflation will be tame at 2.6% in Malaysia this year while growth will be driven mainly by robust domestic sector expansion. In short, monetary policy can afford to remain in cruise control for the rest of the year.

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