KUALA LUMPUR – Malaysia increased its benchmark interest rate for a fourth straight time on Thursday, weeks ahead of a general election where rising living costs and a weak ringgit will emerge as key issues for voters.
Bank Negara Malaysia (BNM) raised the overnight policy rate by 25 basis points to 2.75 per cent, a move seen by 22 out of 24 economists in a Bloomberg survey. The rest had predicted no change.
Pressure is rising for the central bank to keep inflation in check while supporting growth as campaigning heats up for the Nov 19 nationwide vote. Nearly 80 per cent of respondents in a recent survey said that the government’s priority should be either restoring and boosting the economy or combating poverty and managing living costs.
At the same time, the United States’ aggressive monetary policy tightening has led to a persistently strong US dollar environment, affecting major and emerging market currencies including the ringgit, said the BNM.
The ringgit hit a new 24-year low just ahead of the interest rate hike on Thursday.
The currency is likely to face further pressure from US monetary tightening, a slowing global economy, and heightened political risks stemming from an upcoming general election this month.
While price pressures likely peaked in the third quarter and should moderate, headline inflation and core inflation are expected to remain elevated. The balance of risk to the inflation outlook next year is tilted to the upside, BNM said.
Core inflation, which strips out volatile food and fuel items, quickened in September to the most since at least 2015. Price gains are set to stay elevated next year should the government go ahead with plans to end blanket subsidies on fuel and cooking oil.
The central bank “is not on any preset course”, which means the authorities will continue to be data-driven, it said.
“Any adjustments to the monetary policy settings going forward would continue to be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability,” the central bank said.
Future rate decisions would have to take into account the impact of an imminent global slowdown on the export-reliant nation. Threats of recession in many economies could have deep repercussions for Malaysia, which counts China and the US as among its biggest trading partners.
Malaysia last month said gross domestic product will expand between 6.5 per cent and 7 per cent this year, before easing to between 4 per cent and 5 per cent in 2023. BLOOMBERG
