MNI STATE OF PLAY: Malaysian CB Hikes As Economy Strengthens

Malaysia’s central bank has cited the need to normalise monetary policy settings on Wednesday in a decision to hike official interest rates by 25 basis points.

Bank Negara Malaysia increased its Overnight Policy Rate by 25bps, the second rise in as many meetings, and says the local economy is strengthening with higher levels of employment and the April re-opening of international borders driving demand, (See: MNI STATE OF PLAY: Another 25bps Hike Likely In Malaysia).

“Amid the positive growth prospects for the Malaysian economy, the Monetary Policy Committee decided to further adjust the degree of monetary accommodation,” BNM's statement said.

CONSISTENT WITH CONDITIONS

BNM said that the rate hike was consistent with the view that the “unprecedented” conditions which required record low interest rates were continuing to recede.

Domestic inflation is moderate, with the bank is forecasting it will remain within the previously forecast range of 2.2% to 3.2% this year, against the 2% to 3% target. Headline inflation has averaged 2.4% so far in 2022.

While domestic inflation continues to also be contained by existing price controls and subsidies, BNM says the price outlook “continues to be subject to global commodity price developments” from the war in Ukraine and prolonged supply-related disruptions.

The main risks, BNM said, are global, stemming from weaker than expected global growth, or potential recession in the U.S. economy ahead.