KUALA LUMPUR (BLOOMBERG) - Malaysia’s central bank raised its benchmark interest rate for a second straight meeting in a bid to tame inflation, and said future moves will be gradual to continue supporting economic growth.
Bank Negara Malaysia (BNM) increased the overnight policy rate by 25 basis points to 2.25 per cent.
The move further rolls back part of the support implemented from 2020, putting BNM 75 basis points away from restoring the policy rate to its pre-pandemic setting of 3 per cent.
While it joined South-east Asian neighbour Philippines in delivering back-to-back rate increases to blunt rising costs of living, Malaysia said the pace of withdrawal of stimulus measures will be tempered from here on.
“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,” the central bank said in a statement.
That stance is buoyed by headline inflation staying within the central bank’s 2.2 per cent to 3.2 per cent forecast range for this year, with the core measure - which strips out volatile items such as food and fuel - expected to average between 2 per cent and 3 per cent as seen earlier.
Malaysia’s main equities index pared losses to 1.1 per cent after the decision, still headed for the lowest level in more than two years. The ringgit continued to trade near its lowest level in more than three weeks, mirroring weakness in regional currencies, as worries over a recession boosted the United States dollar.
“The fact that it has not gone more ‘ballistic’ with a 50-basis point hike today speaks to the heavy preference for a gingerly approach in tightening,” said Mr Wellian Wiranto, an OCBC Bank economist in Singapore, who expects at least one more quarter-point increase this year. “That will be seen as further normalisation of policy rate rather than outright tightening.”
BNM had previously projected economic growth this year to come in between 5.3 per cent and 6.3 per cent, thanks to a pickup in activity after the reopening of international borders in April, robust exports performance and improvement in retail spending.
That outlook is not without risks. Downside risks to expansion continue to stem from weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions, the central bank said.
