© Reuters. FILE PHOTO: A man walks past the entrance of Bank Negara Malaysia (Bank Negara Malaysia) in Kuala Lumpur, Malaysia, July 31, 2019. Photo taken on July 31, 2019. REUTERS/Lim Huey Teng
(Reuters) – Malaysia’s central bank will raise interest rates by 25 basis points for a third straight time on Thursday and a fourth in November to ease mounting inflationary pressures, according to a Reuters poll. The Fed takes a hawkish stance, but will still choose to move slowly.
Although Malaysia’s inflation rate reached 4.4% in July, well above the target range of 2-3%, it was relatively subdued compared to other Southeast Asian countries, leaving the banking hub at a slower pace.
Bank Negara Malaysia (BNM) has moderately raised interest rates by 50 basis points to 2.25% since May.
All but one of the 20 economists for the Aug. 30-September period. 5 A Reuters poll predicted that Bank Negara would gain 25 basis points to 2.50% at its Sept 8 meeting. If that happens, it would be the first time since 2010 that the central bank has raised interest rates three times in a row.
One economist expected a 50 basis point hike.
“Given the strong GDP growth in 2Q22, signs of further economic expansion in 2H22, albeit at a slower pace, and the second round’s wider impact on inflation, Bank Negara Malaysia may follow up with a third rate hike of 25bps,” pointed out UOB Bank senior economist Julia Goh.
“In addition to internal factors, we think BNM will also take into account the Fed’s outsized rate hikes and global monetary conditions in the coming months at its September meeting.”
Eighty percent of respondents (16 out of 20) expected a quarter-point hike in the November meeting, with the median showing at 2.75 percent.
Nearly 60% of economists (11 out of 19 have a long-term view on rates) expect overnight rates to hit 3.00% by the end of March. The other eight said it was 2.75%.
If a majority prevails, rates will be at pre-pandemic levels. They will then remain the same, at least until the end of next year.
A net oil exporter, Malaysia’s economy expanded 8.9% in the April-June quarter, the fastest pace in a year. Strong growth and signals of further rate hikes by the Federal Reserve will encourage policymakers to continue tightening policy.
Still, economists expect moderate growth as Malaysia’s largest trading partner, China, risks a sharp slowdown.
“Malaysia’s central bank tends to adjust policy rate hikes gradually to balance the recovery of the domestic economy, which faces downside risks to global growth and rising inflationary pressures,” said Han Teng Chua, an economist at DBS Bank.