Malaysia's central bank will maintain rates unchanged and begin tightening in Q3 of this year

[ASEAN NOW Content Team]

 

According to a Reuters poll, Malaysia's central bank will not raise interest rates from a record low until at least July, while it waits for the economy to improve.

Inflation rose over the Bank Negara Malaysia's (BNM) forecast range of 2% to 3% in November, but it was projected to fall back within that range in the following months, giving the central bank leeway to hold off on rate hikes for the time being.

 

The BNM is expected to retain its overnight policy rate at 1.75 percent until the end of June, according to a survey of 23 economists conducted from January 10-14.
On Thursday, none of the 23 anticipate anything to change.

"We expect the recovery to become self-sustaining by mid-2022," said Debalika Sarkar, an economist at ANZ.

"We don't expect the first rate hike until Q3 2022, and it will be more indicative of policy normalisation than tightening," says one analyst.

 

This was in line with the poll's median forecasts.
Economists predict that in the third quarter, the central bank would boost its main interest rate to 2%.

In November, headline inflation increased to 3.3% https://www.reuters.com/article/malaysia-economy-inflation-idUSL8N2T9086.
It was predicted to stabilise this year and next due to global supply chain disruptions and rising fuel prices.
It was expected to fall from 2.5 percent in 2021 to 2.1 percent this year and 2.0 percent next year.

 

The COVID-19 pandemic, on the other hand, may have a greater impact on supply chains.

Indeed, six out of seven respondents who responded to a follow-up question stated their inflation outlook was skewed to the upside.

"Supply disruptions appear to be reducing," said Vincent Loo, senior economist at KAF Investment Bank. "However, if the epidemic prompts more lockdowns in big economies, supply disruptions could worsen."

 

The gradual tightening comes as the Federal Reserve of the United States has taken a very hawkish stance on monetary policy, with a raise forecast as early as March.

"In the past, BNM, like many other Asian central banks, followed the Fed's lead.
However, given the virus's enormous economic impact, BNM would be entirely focused on local issues "Alex Holmes, Capital Economics' emerging Asia analyst, agreed.

 

"I don't believe the Fed's hike will compel them to hike as well."

A growing threat from the coronavirus Omicron strain, as well as a substantial economic slowdown
There are concerns for Malaysia, the world's second-biggest exporter of palm oil, in China, its main trade partner. https://www.reuters.com/markets/asia/china-growth-seen-slowing-52-2022-modest-policy-easing-expected-2022-01-13

In response to another question, six out of seven people stated the risks to their economic growth outlook were skewed more to the downside.

According to poll medians, the economy will increase 5.8% this year and 5.0 percent in 2023, after likely growing 3.5 percent last year.