Malaysia central bank taps the brakes, raises key rate

Kalerkantho Online   

25 January, 2018 16:00 PM

Malaysia central bank taps the brakes, raises key rate

Bank Negara Malaysia, 25 Nov 2016, Bank Negara Malaysia

A- A A+

Malaysia’s central bank on Thursday became the first in Southeast Asia to raise a key interest rate in years, moving to tap the brakes and “normalize” policy well before national elections and at a time of robust growth.

But economists strongly doubt the hike will be followed by another anytime soon.

“We suspect this will be a case of one and done,” Capital Economics said, asserting that growth is set to slow and inflation is benign.

Bank Negara Malaysia (BNM) raised its overnight policy rate (OPR) MYINTR=ECI by 25 basis points to 3.25 percent, saying its monetary policy committee “decided to normalize the degree of monetary accommodation” as the economy remains firmly on a steady growth path.

The hike was its first since July 2014, and the first change in rates since July 2016, when there was a 25 basis point cut.

BNM said it “recognizes the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time”.

After the hike, monetary policy “remains accommodative,” the central bank said.

A slim majority of economists polled by Reuters predicted that the central bank would raise its key rate. Some said that Malaysia was due for a hike, and authorities would prefer to make it well ahead of national polls that must be held by August.

The election will be a bitter fight between Prime Minister Najib Razak and Mahathir Mohamad, his one-time mentor and a former premier.

The central bank has “done a good job of getting this out of the way for now,” said Charu Chanana, an economist in Singapore with Continuum Economics.

She said a second hike won’t be needed “unless growth overshoots the target”.

Malaysia hasn’t yet reported fourth-quarter economic growth. It said the third-quarter’s annual rate was 6.2 percent, the highest in more than three years.