Growth is expected to improve in the second half of this year, helped by higher civil servant wages and improved commodities production from the diminishing effect of El-Nino, Bank Negara Malaysia said Friday.
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However, he warned that Malaysia’s fairly open economy is susceptible to global headwinds.
Growth from a year earlier was 4.2 per cent in the first quarter, slightly beating a median forecast of 4.1 per cent in a Reuters poll but down from 4.5 per cent in the previous quarter. It’s lost 3.2% this quarter, the most in Asia, after outperforming the region in the first three months.
“Domestic demand will continue to be the principal driver of growth, sustained primarily by private sector spending”.
The central bank explained that the lower growth in private investment was attributed to the cautious business sentiments and lower investments in the upstream mining sector. Muhammad did not want to reveal too much of the monetary policy strategy going forward as the monetary policy committee meets next week.
Short-tenured interbank rates would remain stable with the central bank expected to continue the intervention with daily tenders to mop up excess funds in the market, a money dealer said.
Muhammad says the move to reduce the SRR by 50 basis points to 3.50% from February has eased the cost of funding on banks with the Kuala Lumpur Interbank Offered Rate, the rate at which banks lend to each other, having declined 12%.
Amid those developments, the central bank noted several economies adopted more stimulus to support growth. So let’s give them reasonable time to settle the obligation.
Bank Negara Malaysia (BNM) has given 1Malaysia Development Berhad (1MDB) a “reasonable” time to bring back the US$1.83 billion it had invested overseas.
The deadline imposed by BNM for 1MDB to pay the compound is May 30.
The scandal surrounding 1MDB has raised concerns over Malaysia’s sovereign ratings, but Mr Muhammad said the country’s sovereign rating “would not be largely affected” and that the “ringgit has priced in the issue of 1MDB”.
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IPIC paid US$52.4 million of interest on 1MDB’s 5.99% bonds that it guarantees when the payment came due on Wednesday, according to a filing to the London Stock Exchange.
