Malaysia set to stay in the slow lane

Bank Negara (BNM) left policy rates unchanged today at 2.00%, as expected. There were no surprises in the policy statement which pointed to rates remaining on hold for a while. Malaysia’s recovery is picking up speed after a slow start, but inflation is likely to be subdued in 2010 and there is only a low risk that asset bubbles will develop. Fiscal policy will become less supportive during the year and will eventually be tightened, keeping the BNM cautious about raising rates. We still expect a first hike to wait until mid-2010.