Hike rates

Malaysia’s central bank to hike rates again in July and September – Reuters poll

A man walks past the entrance to the Central Bank of Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia July 31, 2019. REUTERS/Lim Huey Teng

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  • All economists expect BNM to hike rates to 2.25%
  • Decision expected at 07:00 GMT on Wednesday July 6

BENGALURU, July 4 (Reuters) – Malaysia’s central bank will raise rates by 25 basis points on Wednesday, its first consecutive hike in more than a decade, to contain inflation driven in part by a weaker ringgit as the Reserve federal government is increasing aggressively, a Reuters poll found.

Bank Negara Malaysia (BNM), although facing low inflation compared to many other economies, unexpectedly raised its overnight rate by 25 basis points to 2.00% at its may.

The 22 economists in the June 27-July 1 poll expect rates (MYINTR=ECI) to rise another 25 basis points to 2.25% at the July 6 meeting. The central bank last raised rates twice in a row in mid-2010.

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Still, BNM, which said it intended to adopt a “measured and gradual” pace, was expected to slow down compared to other global peers.

A slight majority of survey respondents, 12 out of 22, predicted another 25 basis point hike in September to 2.50%, while the remaining 10 expected no change after a hike in July.

Either way, more rate hikes are sure to come.

“BNM will be mindful of potential upward pressures on inflation from recent increases in the minimum wage, upward adjustments to price caps for some food items, and a resumption of demand-led inflation at the following the economic reopening,” noted Derrick Kam, Asia economist at Morgan Stanley.

Inflation rose from 2.3% in April to 2.8% in May. The Malaysian ringgit lost ground in the last quarter and has weakened nearly 6% so far this year, suggesting imported inflationary pressure.

“The Malaysian ringgit has fallen against the greenback due to aggressive rate hikes by the US Federal Reserve, and the increase in the overnight rate will help strengthen the currency by maintaining the interest rate differential” , said Denise Cheok, economist at Moody’s. Analytic.

For the November meeting, 12 of the 22 analysts in the poll predicted rates at 2.50%, eight said 2.75% while two said 2.25%.

The poll’s median forecast also called for 25 basis point hikes in each of the first two quarters of 2023. For the first quarter of 2023, nine of 20 economists expected rates to rise to 2.75%, six forecast 3.00% while five indicated 2.50%.

The overnight rate was expected to reach its pre-pandemic level of 3.00% in the second quarter of next year. About half of respondents, nine out of 19, predicted it would rise to 3.00%, six said 2.75%, three said 2.50% and one said 3.25%.

At its May meeting, the BNM maintained its economic growth forecast for 2022 between 5.3% and 6.3% and projected headline inflation is expected to remain between 2.2% and 3.2% this year.

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Reporting by Anant Chandak and Shaloo Shrivastava; Poll by Devayani Sathyan; Editing by Ross Finley, Hari Kishan and Alison Williams

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