Malaysia's central bank kept its policy rate at 3.00 percent on Wednesday as expected, saying it foresaw more volatility in financial markets, with the ringgit losing 5 percent against the dollar in the two weeks since Donald Trump's shock US election victory.
Malaysia has been hard hit by capital outflows from emerging markets as investors expect US interest rates to rise faster under a Trump administration that is expected to opt for an expansionary fiscal strategy that will fuel inflation.
On Wednesday, the ringgit hit a 13-month low of 4.438 per dollar.
All 13 economists in a Reuters poll had forecast Bank Negara Malaysia (BNM) would leave the overnight policy rate (OPR) unchanged at its regular policy review, due to the pressure on the currency.
The central bank said in a statement that it expects periods of volatility in regional financial and foreign exchange markets due to global uncertainties.
"In this regard, Bank Negara Malaysia will continue to provide liquidity to ensure the orderly functioning of the domestic foreign exchange market," the central bank said, adding that banking system liquidity is "ample".
The ringgit's decline has prompted the central bank to warn banks and traders against selling the currency on the offshore non-deliverable forwards (NDF) market.
The currency market volatility will probably keep the central bank from cutting rates in the near term, analysts said.
In July, Bank Negara unexpectedly cut its key rate by 25 basis points. Prior to that, the rate had been held steady for seven years at 3.25 percent.
"If we see the US dollar strengthening, then we may even see a need for a rate hike," Vaninder Singh, an economist for RBS in Singapore, said.
Over the past couple of years, Malaysia's economy has been buffeted by global economic uncertainties, slumping commodity prices and a confidence-sapping political and financial scandal
at state fund 1Malaysia Development Bhd (1MDB).
The country's international reserves have dwindled to the point that they only cover 1.2 times short-term external debt.
But, the central bank said the economy - which ended five straight quarters of slowing growth by growing 4.3 percent in the September quarter - will continue to be driven by the private sector with some support from exports.
"Going forward, private sector activity will remain the key driver of growth," the central bank said in a statement.
The central bank said export growth will likely be weighed down by soft demand from key trade partners. Headline inflation is expected to be at the lower end of the projected range of 2.0-2.5 percent.
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