Bank Negara Malaysia raises policy rate by 25bp
BNM says it will ensure monetary policy remains accommodative to support economic growth
Malaysia’s central bank has increased its benchmark interest rate for the second consecutive meeting, as the economy shows signs of recovery amid rising inflation.
Bank Negara Malaysia lifted its overnight policy rate by 25 basis points to 2.25% today (July 6). In May, BNM raised the policy rate by 25bp, after maintaining it at 1.75% since July 2020.
The last time BNM increased the key interest rate in consecutive meetings was in 2010.
Announcing its decision, BNM said the local economy had continued to strengthen in recent months, with exports and retail spending indicators showing growth momentum as the Covid pandemic eases.
The unemployment rate has also fallen further, the central bank noted. Unemployment fell to 3.9% in April from 4.6% in the same month a year earlier.
It added that the country’s reopening of international borders since April will boost recovery in tourism-related sectors.
The central bank said it decided to further adjust the degree of its accommodative monetary policy amid “positive growth prospects for the Malaysian economy”. It said unprecedented conditions that necessitated a historically low policy rate have continued to recede.
With the policy rate now standing at 2.25%, BNM said its monetary policy remains accommodative and supportive of economic growth.
“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’s monetary policy committee said.
“Looking ahead, while external demand is expected to moderate, weighed by headwinds to global growth, economic growth will be supported by firm domestic demand,” it added.
But the central bank also warned of risks to economic growth including weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions.
BNM said headline inflation is expected to remain within its forecast range of 2.2–3.3% for this year, though added that the figure may be higher in some months due mainly to fluctuations in electricity prices. Headline inflation is 2.4% on average so far this year in Malaysia.
“The extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and the continued spare capacity in the economy,” said BNM, noting that changes in global commodity prices could affect the inflation outlook.
The Malaysian central bank will hold two more policy meetings this year, scheduled on September 7–8 and November 2–3.
A recent poll of 22 economists by Reuters shows that 12 predicted another 25bp rise in September to 2.5%, while the remaining 10 expected no change after a July hike.
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