Thursday, September 21

Malaysia lifts key rate again to curb inflation

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KUALA LUMPUR — Malaysia’s central bank on Wednesday raised its benchmark interest rate for the second straight meeting, as it looked to tame rising inflation while keeping an eye on unexpectedly weak global economic growth.

Bank Negara Malaysia (BNM) lifted its overnight policy rate by 25 basis points to 2.25%, as expected by all 22 economists polled by Reuters.

It was the first rise at a consecutive BNM meeting in more than a decade, and follows a lift from a historical low of 1.75 in May.

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The central bank said it had decided on a further adjustment after considering “positive growth prospects” for the Malaysian economy, including firmer domestic demand and a recovery in tourism and investment activity.

“However, downside risks to growth continue to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts, and worsening supply chain disruptions,” it said in a statements.

Headline consumer prices in 2022 were projected to be within its forecast range of 2.2% to 3.3% higher than a year earlier, but inflation may be higher in some months due to a low base effect from electricity prices, BNM said.

Inflation would remain partly contained by existing price controls, fuel subsidies and continued spare capacity in the economy, it said.

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BNM said any further adjustments to interest rates would be measured and gradual. A slight majority of economists surveyed by Reuters forecast another rate hike in September, while others expected no change.

OCBC economist Wellian Wiranto said BNM’s cautious approach struck the right balance between considering inflation and global recession risks.

“The fact that it has not gone more ‘ballistic’ with a 50 basis points hike today speaks to the heavy preference for a gingerly approach in tightening,” Wellian said in a note, adding that he expected at least one more interest rate rise this year.

“That will be seen as a further normalization of (the) policy rate rather than outright tightening.”

Capital Economics senior Asia economist Gareth Leather said he expected two more 25-basis-point hikes this year, noting a recent uptick in core inflation.

Malaysia’s export-driven economy had rebounded strongly from the COVID-19 pandemic, but growth was set to ease in coming months amid an expected fall in commodity prices, he added. (Reporting by Rozanna Latiff; Editing by Bradley Perrett)