Malaysia: Bank Negara Malaysia hikes rate in May
At its meeting on 10–11 May, the Monetary Policy Committee of Bank Negara Malaysia (BNM) voted to raise the overnight policy rate by 25 basis points to 2.00% from at its all-time low of 1.75%, after standing pat 10 consecutive times. The move largely surprised market analysts, who overwhelmingly expected the BNM to hold for an 11th time.
The decision to raise the policy rate was driven by a recent surge in price pressures and further supply chain constraints stemming from the war in Ukraine and strict pandemic-related lockdowns in China. Moreover, the move was underpinned by the global tightening cycle, with the Bank specifically noting that other central banks similarly raised rates to counteract rising inflation. On the economic front, the move was supported by healthy economic activity, a robust labor market and solid investment activity. Nonetheless, it noted that risks to growth were tilted to the downside.
In its communiqué, the BNM assessed that the economy had overcome the initial impact of the Covid-19 pandemic and was now poised to handle a less accommodative stance—hinting at further rate hikes ahead. That said, it noted that any moves “will 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”.
Commenting on the outlook after the unexpected hike, economists at Goldman Sachs said:
“We continue to expect the BNM to tighten 100 basis points more over this tightening cycle, with another 50 basis points of hikes each in H2 2022 and H1 2023, taking the policy rate to a terminal rate of 3.00%.”
The BNM’s next meeting is scheduled for 5–6 July.