Malaysia hikes key rate, says not on pre-set tightening path

KUALA LUMPUR – Malaysia’s central bank raised borrowing costs for the third time this year to fight price pressures, while signalling that 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 per cent 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 per cent stronger against the dollar at 3.15pm local time on Thursday, 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-19 restrictions. The easing of virus curbs has spurred pent-up demand in the South-east 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 per cent 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 per cent to 3 per cent forecast range this year.

“The nuanced increases will help to mitigate inflationary pressures and maintain real interest rates,” said Mr Jeff Ng, a senior currency analyst at MUFG Bank in Singapore. “We are optimistic of growth conditions and maintain our GDP (gross domestic product) forecast of 7.2 per cent for this year.” BLOOMBERG