KUALA LUMPUR: Malaysia's central bank left its benchmark rate unchanged on Thursday, but raised the possibility it may review monetary accommodation to adapt to improving economic conditions in the country and globally.
Bank Negara Malaysia (BNM) kept its overnight policy rate (OPR) at 3%, as widely expected, saying in a statement that it "remains accommodative".
The central bank said that given the strength of global and domestic macroeconomic conditions, it may review "the current degree of monetary accommodation" to ensure sustainable growth.
BNM last changed its policy rate in July last year, cutting it by 25 basis points as a preemptive move amid global uncertainty in the aftermath of Britain's Brexit vote.
Brian Tan, a Singapore-based economist with Nomura, said the central bank was likely considering a rate hike next year to deal with the increasing risk of financial imbalances as the local and global economies continue to strengthen.
"Financial imbalances are a very important policy driver and that's been picking up throughout the whole year...we suspect that this is driving this decision," Mr Tan said.
All 11 economists polled by Reuters had expected no change to the central bank's key rate on Thursday.
BNM struck a more bullish note on the domestic economy than in its previous statement on Sept 7, saying Malaysia's economic growth "has become more entrenched".
BNM said economic growth would be driven by private consumption, supported by continued improvements in income and overall labour market conditions.
Domestic demand continues to be a key source of growth in 2018, it said, aided by sustained investments in infrastructure projects and higher capital investment in the manufacturing and services sectors.
"The external sector will provide additional impetus to the economy. Overall, the assessment is for growth to remain strong in 2018," the central bank added.
The government has projected 2017 full-year growth to come in a range between 5.2% and 5.7%.
Inflation was expected to come in at the higher end of the central bank's 2017 forecast of 3-4%, before moderating next year.
A build-up of inflation from strong economic momentum and rising oil prices could possibly rekindle pressures again.
The annual headline inflation rate picked up to 4.3% in September, the second month it gained pace but is still below an eight-year high of 5.1% in March.
The ringgit currency has strengthened 6.2% against the dollar so far this year, which the central bank said better reflects economic fundamentals.