Malaysia Central Bank Raises Policy Rate Unexpectedly To 3.00%

Malaysia’s central bank unexpectedly increased its key interest rate on Wednesday, aiming to bring down persistently high inflation amid firm demand conditions in the domestic economy.

The Monetary Policy Committee of Bank Negara Malaysia decided to hike the Overnight Policy Rate by 25 basis points to 3.00 percent.

The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 3.25 percent and 2.75 percent, respectively.

The rate was left unchanged in the previous two policy meetings. The previous change in the rate was 25 basis points hike in November last year.

Policymakers said the current monetary policy stance is slightly accommodative and remains supportive of the economy.

The MPC said it will continue to ensure that the monetary policy stance remains consistent with the outlook for domestic inflation and growth.

With this decision, the committee has withdrawn the monetary stimulus intended to address the COVID-19 crisis in promoting economic recovery.

Recent official data revealed that Malaysia’s consumer price inflation eased to a 9-month low of 3.4 percent in March from 3.7 percent in February.

The central bank expects both headline and core inflation to moderate over the course of 2023, averaging between 2.8 percent and 3.8 percent.

However, core inflation will remain at elevated levels amid firm demand conditions, the bank said.

The policy board assessed that the level of upward pressure on inflation may continue to be partially restrained by current price limits and fuel subsidies.

The MPC reiterated that the domestic economy is likely to expand further in the first quarter of 2023, and the rest of the year will be driven by domestic demand on the back of strong household spending, improving labor market conditions, and better inbound tourism.

The balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy including on subsidies and price controls, financial market developments, as well as global commodity prices, the bank said in a statement.

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