Malaysian central bank delivers fourth straight 25bp hike

Malaysia’s central bank delivered a fourth consecutive 25 basis point rate hike on November 3 to keep inflation in check.

Bank Negara Malaysia lifted its overnight policy rate to 2.75%, the highest since March 2020. BNM has raised the rate by a total of 100bp since May from its historic low of 1.75%.

The decision was made against the backdrop of continued positive growth prospects for the Malaysian economy, the central bank said in a statement. It added that adjustment would “pre-emptively manage the risk of excessive demand on price pressures”.

Malaysia’s headline inflation moderated slightly, falling to 4.5% year-on-year in September from 4.7% in August. But over the same period, core inflation rose to 4% from 3.8% the previous month.

Headline inflation is likely to have peaked in the third quarter this year and is expected to moderate thereafter, BNM said. It expects core inflation to average closer to the upper end of its 2–3% forecast for 2022, which has averaged 2.7% up to now.

BNM said inflation would probably remain elevated in 2023 due to demand and cost pressures, saying inflation risks were tilted to the upside. But it said Malaysia’s existing price controls and subsidies would partly contain inflationary pressures.

Changes in global commodity prices and domestic policies on subsidies could affect the inflation outlook, it added.

The bank stressed that the monetary policy committee is not on any pre-set course and its policy decisions will depend on evolving conditions. “Any adjustments to the monetary policy settings going forward would continue to be done in a measured and gradual manner,” it added.

The nine-member MPC is chaired by governor Nor Shamsiah Mohd Yunus, who was appointed in July 2018 by then prime minister Mahathir Mohamad. Her five-year term ends in June 2023.

Malaysia’s economy expanded 9% year-on-year in the second quarter. In April, the government lifted a ban on tourists entering the country imposed in response to the Covid-19 pandemic.

The central bank said economic activity strengthened further in the third quarter, driven mainly by robust domestic demand. But it added that external demand is expected to moderate following softening global growth.

BNM said it did not expect volatility in the global financial and foreign exchange markets to derail Malaysia’s growth.

Last month, the government revised up its growth forecast for 2022 to 6.5–7% from a previous range of 5.3% to 6.3%. It expects economic expansion to slow next year to 4–5%.