Malaysia Hikes Key Rate, Says Not on Pre-Set Tightening Path
Malaysia has raised its benchmark interest rate, as it grapples with rising price pressures amid continued improvement in the economy.
(Bloomberg) -- Malaysia’s central bank raised borrowing costs for the third time this year to fight price pressures, while signaling future tightening is not a given as it seeks to support growth and tame inflation.
Bank Negara Malaysia hiked the overnight policy rate by 25 basis points to 2.50% on Thursday, a move seen by all but one of the 19 economists in a Bloomberg survey.
The bank is “not on any pre-set course” and will remain data dependent, it said in a statement. “Any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner, ensuring that monetary policy remains accommodative.”
The ringgit traded about 0.1% stronger against the dollar at 3:15 p.m. local time, while the main equities index held gains. The currency fell to its lowest level since the 1998 Asian financial crisis this week as haven flows and rising US yields boosted the dollar.
The decision comes just a day after Malaysia lifted its mask mandate, ending the last of its significant Covid-era restrictions. The easing of virus curbs has spurred pent-up demand in the Southeast Asian country this year, helping gross domestic product to expand at the fastest pace in a year in the second quarter.
“The economy is stronger,” the central bank said in a presentation after Thursday’s move that takes the cumulative hikes this year to 75 basis points. “It doesn’t need large support like it did during the pandemic.”
The economy’s reopening has been accompanied by a rise in consumer prices, which surged to a 14-month-high of 4.4% in July amid record food inflation. The central bank expects the headline price print to peak in the third quarter and moderate thereafter, reflecting easing global commodity prices. It sees the core inflation measure averaging close to the upper end of a 2%-3% forecast range this year.
What Bloomberg Economics Says...
BNM expects headline inflation to peak this quarter and sees ongoing downside risks to growth -- which could justify a rate hold at its last policy meeting of the year in November.
-- Tamara Mast Henderson, Asean economist
For the full note, click here
“The nuanced increases will help to mitigate inflationary pressures and maintain real interest rates,” said Jeff Ng, a senior currency analyst at MUFG Bank Ltd. in Singapore. “We are optimistic of growth conditions and maintain our GDP forecast of 7.2% for this year.”
(Updates with market reax in the third paragraph and analyst comment in the last.)
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