Malaysia central bank hikes key rate again as inflation persists amid strong growth

Malaysia central bank hikes key rate again as inflation persists amid strong growth
A general view of the Bank Negara Malaysia in Kuala Lumpur, Malaysia on Mar 8, 2016. (File photo: Reuters/Olivia Harris)

KUALA LUMPUR: Malaysia’s central bank raised its benchmark interest rate for the fourth straight meeting on Thursday (Nov 3) as it seeks to cool inflation amid a positive growth outlook.

Bank Negara Malaysia (BNM) lifted its overnight policy rate (OPR) by 25 basis points to 2.75 per cent, as expected by all but two of 27 economists polled by Reuters.

Including Thursday’s hike, BNM has raised rates by a total of 100 bps since May from a historic low of 1.75 per cent.

The central bank said in a statement Thursday’s rate adjustment would “pre-emptively manage the risk of excessive demand on price pressures”.

“The balance of risk to the inflation outlook in 2023 is tilted to the upside and continues to be subject to domestic policy measures on subsidies, as well as global commodity price developments,” it said.

BNM said its monetary policy committee was not on any pre-set course and any rate adjustments would depend on evolving conditions and their implication on the outlook for growth and inflation.

BNM’s pace of tightening has been slower than that of some of its peers as heavy subsidy and price control measures kept inflation in check.

But inflation has been ticking upward, with the consumer price index rising 4.5 per cent from a year earlier in September, moderating slightly from 4.7 per cent in August. The government expects headline inflation to average at 3.3 per cent this year.

Malaysia’s economy has recovered strongly from a pandemic-induced slump since its borders reopened in April, expanding 8.9 per cent in the second quarter, its fastest annual pace in a year.

BNM said the latest indicators show that economic activity strengthened further in the third quarter, though external demand was expected to moderate following softening global growth.

Last month, the government revised its 2022 growth forecast to 6.5 per cent to 7 per cent from a previous range of 5.3 per cent to 6.3 per cent, though it expects economic expansion to slow next year to 4 per cent-5 per cent.

The rate hike comes as the Malaysian ringgit hit a new 24-year low, just ahead of the central bank’s announcement on Thursday.

The currency is likely to face further pressure from US monetary tightening, a slowing global economy, and heightened political risks stemming from an upcoming general election this month.

Source: Reuters/st