Seventeen economists polled by Bloomberg expected Bank Negara Malaysia to lift its overnight policy rate by 25 basis points on Thursday 8 September 2022. It did exactly that. The rate now sits at 2.5%, and the surprise, such as it was, lay in how little there was.
The central bank’s Monetary Policy Committee, meeting for the fifth time that year, also moved the corridor around the policy rate in step: the ceiling goes to 2.75% and the floor to 2.25%. This is the third consecutive increase of a quarter point in 2022, which adds up to 75 basis points since the year began.
A measured tone
The committee called the policy stance “accommodative and supportive of economic growth” even at the new level, and it said it was not following a pre-set course. Any further adjustments, it said, would be “measured and gradual”. For borrowers, that is a polite way of saying the direction is clear and the speed is negotiable.
Malaysia first raised the rate in May, ending a two-year hold at a record-low 1.75% that had run since July 2020 to cushion the economy from the pandemic. At 2.5% it has crept nearer to its pre-pandemic level of 3.0%.
Growth, prices and the Fed
The economy gave the committee little reason to hesitate. The Bloomberg consensus for 2022 growth had risen to 6.8% from 6.2% in August. Bank Negara pointed to private-sector spending, a firmer labour market, reopened borders helping tourism, and multi-year projects feeding investment. Weaker global demand was acknowledged, but the bank did not expect volatility in financial and currency markets to derail growth.
Inflation is the other half of the argument. Headline consumer price inflation is projected to peak in the third quarter of 2022 and ease afterwards, as base effects fade and global commodity prices soften. Headline inflation ran at 2.8% year on year in the second quarter, against 2.2% in the first. Core inflation is forecast to average closer to the upper end of a 2.0% to 3.0% range, with what the bank described as signs of demand-driven pressure. Price controls, fuel subsidies and spare capacity should hold some of that in check. The war in Ukraine and persistent supply disruptions continue to cloud the outlook.
The outside world matters too. The new policy rate narrows the distance to the US Federal Reserve’s range of 2.25% to 2.5%, and the Fed was widely expected to add another 75 basis points later in September. Bank Negara noted that aggressive American rate moves have strengthened the dollar and made markets more volatile, ringgit included.
The bank listed its worries: weaker global growth, geopolitical escalation, worsening supply chains, elevated cost pressures, a potential energy crisis in Europe and sharp tightening in financial conditions. It also named China’s pandemic management measures as a drag on world growth. Whether 2.5% is where the cycle pauses, the committee did not say.
Sources
- Bank Negara raises OPR by 25bps to 2.5%, as expected
- Bank Negara raises OPR by 25 basis points to 2.50 per cent
