Malaysia Expected to Hike Interest Rate by 25 Basis Points

The Bank Negara Malaysia, the country's central bank, is pictured in Kuala Lumpur on November 22, 2010. (STR/AFP via Getty Images)

Malaysia’s central bank is expected to raise the interest rate by 25 basis points on Thursday, a Reuters poll showed, which will be the country’s third consecutive increase amid rising global inflation.

The survey’s findings, which involved 20 analysts, suggest a 25 basis point hike to 2.50 percent by the Malaysian Central Bank (BNM) on Wednesday, followed by another 25 basis point hike to 2.75 percent in November.

About 60 percent of the economists expected BNM’s overnight rate to reach 3.00 percent by the end of March, while the remaining predicted 2.75 percent.

BNM previously hiked the overnight policy rate by 25 basis points to 2.25 percent on May 11 and July 6.

Julia Goh, a senior economist at United Overseas Bank, said BNM would likely consider internal factors, as well as the projected outsized U.S. Federal Reserve rate hikes and global monetary conditions, at its upcoming meeting on Wednesday.

“Given a robust GDP growth print in 2Q22, signs of further economic expansion in 2H22 albeit at a moderate pace, and broadening second-round effects on inflation, Bank Negara Malaysia will likely follow-through with a third 25bps rate hike,” Goh said.

BNM Governor Tan Sri Nor Shamsiah Mohd Yunus said in August that any adjustment to monetary policy will be “gradual and controlled,” maintaining the bank’s accommodative stance to support the nation’s economic recovery.

“Changing the [overnight policy rate] by 75 basis points this year will not be consistent with that,” Nor Shamsiah was quoted as saying by The Malaysian Reserve.

Malaysia’s headline inflation rate rose to 4.4 percent in July, while core inflation rose from 3.0 percent to 3.4 percent. BNM said that food and non-alcoholic beverages contributed to high inflation, increasing by 6.9 percent in July.

The government projected a growth rate of between 5.3 percent and 6.3 percent in its economy this year, following a 6.9 percent growth rate in the first half of 2022, Deputy Finance Minister Mohd Shahar Abdullah said Tuesday.

“Without the subsidies provided for basic goods, it is estimated that inflation would reach 11.4 percent,” Mohd Shahar said in a statement.

Reuters contributed to this report.