Malaysia: Bank Negara Malaysia continues tightening cycle in September
At its meeting on 7–8 September, the Monetary Policy Committee of Bank Negara Malaysia (BNM) voted to raise the overnight policy rate for the third consecutive time by 25 basis points, bringing it to 2.50%. The move came in in line with market analysts’ expectations.
The decision mirrored those taken at BNM’s previous two meetings, and was mainly driven by persistently high price pressures; inflation hit the joint-highest reading in 15 months in July. Nonetheless, the Bank expects it to peak in Q3 as government subsidies should help cap prices. Meanwhile, economic growth remained robust in Q2 thanks to the lifting of the remaining Covid-19 restrictions and fiscal support from the government. Moreover, high-frequency indicators suggest GDP growth should gain further steam ahead, cementing the Bank’s decision to continue its tightening cycle.
In its September release, BNM kept its dovish tone from the previous meeting and once again stated that “any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner”. As such, it remained prudent about hiking rates too quickly.
Commenting on the outlook over the coming months, economists at Goldman Sachs said:
“Going forward, with core inflation gaining momentum as the economy remains on a solid recovery path, amid diminishing spare capacity and higher pass-through from input cost pressures to retail goods prices, we continue to expect BNM to hike 25bp in Q4 2022 and again in Q1 2023, bringing the policy rate up to 3.0%.”
BNM’s next meeting is scheduled for 2–3 November.