Malaysia delivers back-to-back rate hikes to ward off inflation
published : 6 Jul 2022 at 14:55
Malaysia’s central bank on Wednesday raised its benchmark interest rate for a second straight meeting in a bid to tame inflation and signaled more measures going forward will be gradual.
Bank Negara Malaysia (BNM) increased the overnight policy rate by 25 basis points to 2.25%, a move seen by 18 of the 19 economists surveyed by Bloomberg. One saw no change.
The move further rolls back part of the support implemented from 2020, putting the BNM 75 basis points away from restoring the policy rate to its pre-pandemic setting of 3%. While it joined Southeast Asian neighbour Philippines in delivering back-to-back rate increases to blunt rising costs of living, Malaysia said the pace of withdrawal of stimulus measures will be tempered from hereon.
“Any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability,” the central bank said in a statement.
That stance is buoyed by headline inflation staying within the central bank’s 2.2%-3.2% forecast range for this year, with the core measure -- which strips out volatile items such as food and fuel -- expected to average between 2%-3% as seen earlier.
Malaysia’s main equities index pared losses to 1.1% after the decision, still headed for the lowest level in more than two years. The ringgit continued to trade near its lowest level in more than three weeks, mirroring weakness in regional currencies, as worries over a recession boosted the dollar.
“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,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore, who expects at least one more quarter-point increase this year. “That will be seen as further normalisation of policy rate rather than outright tightening.”
BNM had previously projected economic growth this year to come in between 5.3% to 6.3%, thanks to a pick up in activity after reopening of international borders in April, robust exports performance and improvement in retail spending.
That outlook isn’t without risks. Downside risks to expansion continue to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts, and worsening supply chain disruptions, the central bank said.