A hike would be the first time Bank Negara Malaysia raised rates at consecutive meetings.
Malaysia’s central bank meets this week and is expected to continue with the tightening cycle it commenced at its last meeting in May.
Bank Negara Malaysia surprised the market in May with a 25 basis point hike in the Overnight Policy Rate, taking it to 2%, and is likely to continue with another similar rise this week as the bank looks to pre-emptively bring inflation under control. Any increase would be the first time BNM has hiked rates at consecutive meetings, (See: MNI STATE OF PLAY: Malaysia Moves Early With Rate Hike).
The policy rate was at 3.25% in 2018 before the bank started to cut as the pandemic lockdowns took hold and the first cut was in May 2019.
INFLATION, RINGGIT, GROWTH
Malaysian inflation was at 2.8% in May, towards the upper levels of the central bank’s 2 to 3% target range, although food inflation is travelling at around 4%. BNM has forecast inflation at between 2.2% and 3.2% this year, but market forecasts are higher.
The weakening ringgit is also a concern, with the unit down over 6% against the USD in the last year as regional currencies have declined as the US Fed has increased rates.
The outlook for growth remains positive, however, with BNM maintaining a growth forecast of between 5.3% and 6.3% for the year as the economy continues to recover from the pandemic lockdowns.
BNM's decision will be announced on Wednesday afternoon in the Asian time zone.