Malaysia Central Bank Hikes Interest Rate by 25bps

Malaysia's central bank raised its benchmark interest rate unexpectedly on Wednesday (May 3), citing the need to normalise monetary accommodation because the economy was resilient and it needed to manage persistent inflation.

The Bank Negara Malaysia (BNM) increased its overnight policy rate by 25 basis points to 3%. A poll of 25 economists found that the Bank Negara Malaysia's overnight policy rate would remain at 2.75 percent, with only four forecasting a rate hike.

BNM held rates steady at its two previous meetings this year as it assessed the impact of four consecutive hikes totaling 100 basis points in 2022.

Southeast Asia's economy has recovered strongly from a pandemic-induced slump, with growth reaching a 22-year high of 8.7 percent in 2022, but slowing global demand has clouded the outlook for its energy, commodities, and high-tech exports.

According to BNM, recent developments indicate that economic activity will expand further in the first quarter of 2023, driven by strong domestic demand, household spending, and improved labour market conditions.

While inflation was expected to moderate, it was predicted that core inflation would remain elevated due to strong demand conditions.

"With domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalise the degree of monetary accommodation," the central bank said in a statement referring to its monetary policy.

According to government data, the consumer price index rose 3.4 percent year on year in March, the slowest rate in nine months.

The central bank expects headline inflation to average between 2.8% and 3.8% in 2023, up from 3.3 percent last year.

According to BNM, Malaysia's economy will grow by 4% to 5% this year.