BENGALURU- Malaysia’s central bank will raise rates by 25 basis points on Wednesday, its first consecutive rise in more than a decade, to rein in inflation stemming in part from a weaker ringgit as the US Federal Reserve hikes aggressively, a Reuters poll found.
Bank Negara Malaysia (BNM), although dealing with low inflation compared with many other economies, unexpectedly raised its key overnight policy rate by 25 basis points to 2.00 percent at its May meeting.
All 22 economists in the June 27-July 1 poll forecast rates to rise by another 25 basis points to 2.25 percent at the July 6 meeting. The central bank last raised rates twice in a row in mid-2010.
Still, BNM, which has said it intends to take a “measured and gradual” pace, was expected to go slow compared with other global peers.
A slight majority of survey respondents, 12 of 22, predicted another 25 basis point rise in September to 2.50 percent, while the remaining 10 expected no change after a July hike.
Either way, more rate hikes are certainly coming.
“BNM will be mindful of potential upside pressure to inflation stemming from recent increases in minimum wages, upward adjustments in price ceilings for certain food products, and a pickup in demand-pull inflation on the back of economic reopening,” noted Derrick Kam, Asia economist at Morgan Stanley.
Inflation rose to 2.8 percent in May from 2.3 percent in April. The Malaysian ringgit lost ground last quarter and has weakened nearly 6 percent so far this year, raising the prospect of imported inflation pressure.
“The Malaysian ringgit has been falling against the greenback due to aggressive rate hikes by the US Federal Reserve, and raising the overnight policy rate will help to shore up the currency by maintaining the interest rate differential,” said Denise Cheok, an economist at Moody’s Analytics.
For the November meeting, 12 of 22 analysts in the poll predicted rates at 2.50 percent, eight said 2.75 percent while two said 2.25 percent.
