(Bloomberg) — Malaysia is widely expected to increase its main policy rate for a third straight meeting on Thursday, as the nation’s central bank continues to focus on taming inflation amid robust economic growth.
(Bloomberg) — Malaysia is widely expected to increase its main policy rate for a third straight meeting on Thursday, as the nation’s central bank continues to focus on taming inflation amid robust economic growth.
Bank Negara Malaysia will increase the overnight policy rate by 25 basis points to 2.50%, according to all but one of the 19 economists in a Bloomberg survey. Bloomberg Economics predicts the authority will deliver a half-point hike, on top of a total of 50 basis points of moves so far this year.
BNM faces pressure to stay on its tightening course as the economy’s growth momentum and a weak currency fan price gains. The central bank has only two scheduled meetings remaining this year, including this week’s decision, to ensure inflation expectations stay anchored.
Here’s what else to watch for in Thursday’s statement:
Inflation Outlook
Consumer prices rose to a 14-month high in July, with food inflation hitting a record 6.9%. As Malaysia’s economic growth is likely to remain on solid footing this quarter after expanding by a stronger-than-expected 8.9% in the April-June period, both food and headline inflation measures will be under pressure, raising bets for further tightening.
“Given a robust 2Q GDP growth print, signs of further economic expansion in the second half albeit at a moderate pace, and broadening second-round effects on inflation, BNM will likely follow through with a third 25-basis points hike,” United Overseas Bank economists including Julia Goh wrote in a report.
UOB raised its full-year inflation estimate to 3.5% from 3% previously. That’s above BNM’s price-growth forecast of 2.2%-3.2% for 2022.
What Bloomberg Economics Says…
BNM has so far favored a gradual pace of tightening in 25-bp increments. But with inflation accelerating, price pressures broadening and a peak still looking far off, we expect a more aggressive rate hike of 50 bps this time around.
— Tamara Mast Henderson, Asean economist
For the full note, click here
A hike in rates could benefit the ringgit, which has fallen to its lowest level since the 1998 Asian financial crisis, as safe-haven flows and rising US yields boosted the dollar. As of Wednesday’s close, the currency has slid about 7.5% so far this year but it’s still fared better than other Asian currencies including the won and the yen.
Recession Fears
BNM in its policy statements this year has flagged risks to the growth outlook from the moderation in world demand. Finance Minister Zafrul Aziz has said that the outlook will be more challenging heading into 2023 because of fears of a slowdown in the global economy.
Analysts will watch for any change in the language to gauge if future tightening would continue to be gradual and measured.
“The extent of the global downturn in subsequent quarters — how deep and long a potential recession will be — and more importantly how it will impact domestic demand, remains a key uncertainty,” CIMB Bank economists including Kristina Fong wrote in a Sept. 6 note. “The messaging with regards to this in the upcoming policy will be of one to note, which can provide signals of a more gradual pace in the hiking cycle or a continuation of a front-loaded strategy.”
CIMB economists said they expect BNM’s tightening cycle to continue for the rest of the year and into the first quarter of 2023, reaching a terminal rate of 3.25%.
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