Hike rates

Malaysian central bank to hike rates next quarter

Content of the article

BENGALURU – Malaysia’s central bank will keep its interest rate steady this week to support a still-nascent economic recovery, according to a Reuters poll, but will start to tighten policy next quarter to head off rising inflationary pressures.

This dovish stance was in stark contrast to other major central banks and some of its Asian counterparts who are raising interest rates at a much faster pace than previously thought to rein in stubbornly high inflation.

For now, Bank Negara Malaysia (BNM) has the freedom to keep rates low as pricing pressures remain subdued, but supply chain disruptions and the ongoing Russian-Ukrainian war pose a major risk to these prospects.

Advertisement 2

Content of the article

The April 28-May 6 poll of 18 economists predicted that Bank Negara Malaysia (BNM) would keep its key overnight rate unchanged at 1.75% on Wednesday.

“We believe BNM would like to see a sustained post-pandemic economic recovery amid growing downside risks before normalizing policy early in 2H22, although it has already flagged prospects of withdrawing significant monetary support,” said Chua Han Teng, economist at DBS.

But widening interest rate differentials with some regional players and the US Federal Reserve prompted a handful of participants, 4 of 18 economists, to predict a rate hike coming as early as this month.

“Given the expected improvement in economic conditions and upward pressure on prices, we believe BNM is on track to raise the overnight policy rate,” said Julia Goh, senior economist at the UOB, which expected a 25 basis point hike in May.

Advertisement 3

Content of the article

“BNM also warned that keeping interest rates low for an extended period could lead to the emergence of financial imbalances with excessive risk-taking and an unhealthy build-up of leverage.”

However, survey results suggest a 25 basis point rise in the next quarter to 2.00%, followed by another quarter point rise in the fourth quarter, to end the year at 2.25. %.

Those expectations were unchanged from an April poll.

The BNM now expects the Malaysian economy to grow by 5.3% to 6.3% this year, slightly lower than the 5.5% to 6.5% previously forecast, thanks to stronger global demand. high and at higher raw material prices.

Malaysia is a net oil exporter and the second largest producer of palm oil.

Inflation was estimated to average between 2.2% and 3.2% in 2022, slightly above the central bank’s target range of 2% to 3%.

(Reporting by Shaloo Shrivastava; Polling by Prerana Bhat and Devayani Sathyan Editing by Nick Zieminski)

Advertisement

comments

Postmedia is committed to maintaining a lively yet civil discussion forum and encourages all readers to share their views on our articles. Comments can take up to an hour to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We have enabled email notifications. You will now receive an email if you receive a reply to your comment, if there is an update to a comment thread you follow, or if a user follows you comments. Visit our Community Rules for more information and details on how to adjust your E-mail settings.