Malaysia: Bank Negara Malaysia delivers another hike in July
At its meeting on 5–6 July, the Monetary Policy Committee of Bank Negara Malaysia (BNM) voted to raise the overnight policy rate for the second consecutive time by 25 basis points, bringing it to 2.25%. The move came in in line with market analysts’ expectations.
Echoing May’s reasoning, the decision to hike rates again in July was mainly due to stubbornly high inflation fueled by the impact of the Russia-Ukraine war and strict pandemic-related lockdowns in China. Moreover, tighter monetary stances worldwide—notably from the Fed—in the face of surging inflation underpinned the decision. Meanwhile, BNM noted that high-frequency indicators hinted at robust activity at home: Robust employment levels and retail sales hint at solid spending, while the reopening of international borders from April is buttressing the tourism sector. Moreover, upbeat exports figures through May, supported by the commodities price rally, cemented the Bank’s decision to raise rates. Lastly, BNM noted that the conditions that warranted historically low rates have shifted.
In its communiqué, the Bank remained wary about hiking rates too quickly, keeping its focus on balancing growth with price stability. It specifically stated that “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”.
Commenting on the outlook over the coming months, economists at Goldman Sachs said:
“Going forward, we continue to expect BNM to deliver another 75bp of rate hikes in this tightening cycle with 25bp in Q4 and 50bp in H1 2023, bringing the policy rate to a terminal rate of 3%. Although, given the emphasis on policy normalization amid a robust growth outlook, we see risk of another back-to-back hike in the upcoming meeting.”
BNM’s next meeting is scheduled for 7–8 September.