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Malaysia central bank surprises by raising policy rate to 3%

Malaysia central bank surprises by raising policy rate to 3%

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

KUALA LUMPUR: Malaysia's central bank unexpectedly raised its benchmark interest rate on Wednesday (May 3), citing a need to normalise monetary accommodation as the economy was resilient and it needed to manage persistent inflation.

Bank Negara Malaysia (BNM) lifted its overnight policy rate by 25 basis points to 3 per cent. A Reuters poll of 25 economists had largely expected Bank Negara Malaysia to hold its overnight policy rate at 2.75 per cent, with just four forecasting a rate hike.

BNM had kept rates unchanged at its two previous meetings this year, as it sought to assess the impact of four consecutive hikes totalling 100 basis points in 2022.

The Southeast Asian economy has bounced back strongly from a pandemic-induced slump, with growth hitting a 22-year high of 8.7 per cent in 2022, but slowing global demand has clouded the outlook for its exports of energy, commodities and high-tech goods.

BNM said in a statement that the latest developments point towards further expansion in economic activity in the first quarter of 2023, driven by strong domestic demand, household spending and better labour market conditions.

While inflation was expected to moderate, core inflation would remain at elevated levels amid firm demand conditions, it said.

"With the domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalise the degree of monetary accommodation," the central bank said, referring to its monetary policy committee.

The consumer price index in March grew 3.4 per cent from a year earlier, its slowest pace in nine months, government data showed.

The central bank has forecast headline inflation to average between 2.8 per cent and 3.8 per cent in 2023, compared with 3.3 per cent last year.

Malaysia's economy was expected to grow 4 per cent-5 per cent this year, BNM has said.

Source: Reuters

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