KUALA LUMPUR, May 18 ― Malaysia's newly-appointed central bank governor will probably not make major changes to monetary policy at a review tomorrow, leaving room for a possible rate cut if the economy falters.

Bank Negara Malaysia (BNM) is widely expected to keep its overnight policy rate unchanged despite falling inflation as economic growth will likely improve in the coming quarters.

Southeast Asia's third-largest economy has posted five quarters of declining growth due to weak exports and tepid domestic demand, but improved commodities production will lend support in the second half, economists say.

Eleven out of 12 economists in a Reuters poll predicted the central bank will keep the rate steady at 3.25 per cent, with one forecasting a 25-basis-point cut.

The broad view among economists is that Malaysia's first quarter growth of 4.2 per cent was better than expected, even if it was the slowest in nearly seven years.

“Although inflation slowed more than expected in March to 2.6 per cent and should continue to cool further on fuel prices, policymakers do not view growth as sufficiently weak,” HSBC said in a research note.

HSBC added it was unlikely the new central bank governor, Datuk Muhammad Ibrahim, will spring any surprises.

The appointment of the central bank veteran, who officially took over on May 1 from his respected predecessor, Zeti Akhtar Aziz, drew a sigh of relief from markets anxious about the country's economic and political problems.

Malaysian Prime Minister Najib Razak faces political pressure over a financial scandal tied to state-owned 1Malaysia Development Berhad (1MDB) and economic challenges that have not been seen since the 1997-1998 Asian financial crisis.

Forward planning

ANZ economist Weiwen Ng said there was no compelling reason for the central bank to shift its position on interest rates in the near term, and that it would be more prudent for the new governor to stay the course for now.

“This would also allow BNM to save up policy space should they need to make any changes in future,” Ng said.

The consensus among economists polled was for no change in the statutory reserve requirement ratio (SRR), though HSBC noted that a further cut is possible “should the unusually wide spread between the OPR and money market rates stop narrowing”.

BNM cut the SRR to 3.5 per cent from 4.0 per cent in January, to add liquidity into the banking system.

In January, the government revised its 2016 growth projection to 4.0-4.5 per cent from 4.0-5.0 per cent, on expectations of a sustained slump in global crude prices. ― Reuters