Malaysia central bank raises interest rate to 2.25%, second hike this year to support economic growth
KUALA LUMPUR: Malaysia’s central bank has raised rates by 25 basis points to 2.25 per cent on Wednesday (July 6), the second interest rate hike this year.
The ceiling and floor rates of the corridor of the overnight policy rate (OPR) were correspondingly increased to 2.50 per cent and 2.00 per cent, respectively.
In a statement, Bank Negara Malaysia (BNM) said it decided on the hike to further adjust the “degree of monetary accommodation” amid the positive growth prospects for the Malaysian economy.
It said that this is consistent with its Monetary Policy Committee’s (MPC) view that the “unprecedented conditions that necessitated a historically low OPR have continued to recede.”
BNM’s decision for the second rate hike came after its fourth monetary policy committee meeting of the year.
It added that at the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth.
“The MPC will continue to assess evolving conditions and their implications on the overall outlook to domestic inflation and 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,” said BNM.
BNM said that economic activity in the country has continued to strengthen in recent months, with exports and retail spending indicators affirm the positive growth momentum, supported by the transition to endemicity.
It said that the reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activity, although these have been partly offset by the impact from rising cost pressures, the military conflict in Ukraine and strict COVID-19 containment measures in China.
“Inflationary pressures have continued to increase mainly due to elevated commodity prices and strong demand conditions, despite some easing in global supply chain conditions.
“Consequently, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures,” BNM added.
This is the second time that the central bank increased the OPR, with its first hike of 25 basis point increase in May, saw the interest rate go up from 1.75 per cent to 2 per cent.
Over the course of the COVID-19 crisis, the OPR was reduced in five cuts from May 2019 to July 2020 totalling 125 basis points, which saw the interest rate go down from 3.0 per cent to 1.75 per cent.
