Malaysia’s central bank increases the key rate once more as inflation risk dims the positive outlook

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Last Updated on September 11, 2022 by Bitfinsider

On Thursday, September 8, Malaysia’s central bank increased its benchmark interest rate for the third meeting in a row in an effort to contain inflation amid strong economic growth.

In line with expectations expressed by 19 out of 20 economists surveyed by Reuters, Bank Negara Malaysia increased its overnight policy rate by 25 basis points to 2.50 percent.

It had not produced three straight increases prior to this since 2010.

In November, the economists surveyed also anticipate a fourth increase. At its two previous sessions, BNM lifted interest rates from a record-low 1.75 percent.

Indicators like as improved labor market conditions and a rebound in investment activity and tourism following the reopening of borders, according to the central bank, pointed to ongoing economic growth.

The monetary policy committee of BNM stated that it was “not on any pre-set route” and would continue to evaluate changing circumstances and how they would affect the outlook for domestic inflation and growth as a whole.

In July, consumer price growth accelerated from June and increased to 4.4% on an annual basis. This year, headline inflation has averaged 2.8%.

According to BNM, core inflation, which measures underlying inflation, is anticipated to average closer to the top end of its range of 2% to 3% in 2022.

It predicts that before declining, headline inflation will peak in the current quarter.

To prevent the need for more drastic steps in the future, the central bank declared last month that any rate modifications would be gradual and measured.

Since its borders were reopened in April, Malaysia’s economy has made a dramatic comeback from a pandemic-induced recession, growing by 8.9% in the second quarter, the strongest annual rate in a year.

BNM anticipates that the economy would expand more slowly in the second half of the year due to an anticipated slowdown in global growth.

BNM said despite the increasing volatility in the global financial and foreign exchange markets, these changes were not projected to hinder Malaysia’s growth.

The Malaysian ringgit hit a 24-year low on Wednesday but somewhat recovered on Thursday before BNM’s announcement.

Despite a recent drop in commodity prices and lower global demand, Capital Economics stated in a note that Malaysia’s economy was “well situated to sustain additional rate hikes.”

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