Malaysia's central bank said on Wednesday there was potential for further adjustments to its benchmark interest rate, with inflation levels expected to moderate but remain elevated throughout the year.

Bank Negara Malaysia (BNM) had left the overnight policy rate

unchanged at its two previous meetings this year, citing a need to assess the economic impact of four consecutive rate hikes in 2022.

BNM Governor Nor Shamsiah Mohd Yunus said on Wednesday the impact of the rate hikes so far has been orderly, with no signs of excessive tightening in consumption and investment.

But she stressed the central bank was "not on any pre-set path", adding it would continue to assess the impact of monetary adjustments on inflation and growth.

"It's a delicate balancing act. We need to remain agile and respond to any changes," she told reporters after the release of BNM's annual report.

In its report, BNM warned the inflation outlook remained uncertain and tilted to the upside due to higher commodity prices, and changes in government policy on subsidies and price control.

Headline and core inflation were projected to average between 2.8%-3.8% in 2023, BNM said. Headline inflation was at 3.3% last year.

Malaysia's economy has bounced back strongly from a pandemic slump, expanding at a 22-year high of 8.7% in 2022, but its outlook for this year has been clouded by cooling global demand.

BNM maintained its economic growth forecast for 2023 at 4% to 5%, saying that improved domestic conditions will likely offset risks stemming from a global slowdown.

Risks to Malaysia's economy remain "fairly balanced", with the country expected to benefit from firm domestic demand, China's reopening, resilient labour markets, and a recovery in tourism, Nor Shamsiah said.

Malaysia's banks remain well-capitalised, she said, adding that recent volatility in the global banking sector has had minimal impact on the country's financial markets.

Strict capital and liquidity rules and regular stress tests indicated that Malaysian banks were well-placed to withstand severe economic and financial market crises, she said.


"Our banks are resilient and we do not expect what we see in other countries to happen here," she said, referring to turmoil in the global banking sector that has seen a string of bank failures in Europe and the United States.

(Reporting by Rozanna Latiff Editing by Ed Davies, Kanupriya Kapoor)