Malaysia Central Bank Hikes Key Rate Again as Inflation Risk Clouds Sunny Outlook

MALAYSIA - KUALA LUMPUR. Malaysia's central bank lifted its benchmark interest rate for the third straight meeting on Thursday, as it looks to rein in inflation amid robust economic growth.

Bank Negara Malaysia raised its overnight policy rate by 25 basis points to 2.50%, as expected by 19 of 20 economists polled by Reuters.

It was the first time it had delivered three consecutive hikes since 2010.

The economists polled also expect a fourth hike in November. BNM had raised rates at its two previous meetings from a historic low of 1.75%.

The central bank said in a statement that indicators pointed to continued growth in the economy, including improved labour market conditions and a recovery in investment activity and tourism following the reopening of borders.

BNM's monetary policy committee was "not on any pre-set course and will continue to assess evolving conditions and their implications on the overall outlook to domestic inflation and growth," it said.

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Consumer prices rose 4.4% on an annual basis in July, quickening from June, with headline inflation averaging at 2.8% this year.

BNM said underlying inflation, as measured by core inflation, was expected to average closer to the upper end of its range of 2%-3% in 2022.

It expects headline inflation will peak in the current quarter before moderating.

The central bank said last month any rate adjustments would be measured and gradual to avoid stronger measures in the future.

Malaysia's economy has recovered strongly from a pandemic-induced slump since its borders reopened in April, expanding 8.9% in the second quarter, its fastest annual pace in a year.

However, BNM sees the economy growing at a more moderate pace in the second half of the year, amid an expected slowdown in global growth.

BNM said despite the increased volatility in the global financial and foreign exchange markets, these developments were not expected to derail Malaysia's growth.

Malaysia's ringgit MYR= had fallen to a 24-year low on Wednesday, though had bounced back slightly on Thursday ahead of BNM's announcement.

Capital Economics said in a note Malaysia's economy was "well placed to absorb further rate hikes", despite a recent decline in commodity prices and weaker global demand.