Malaysia raises rate 25 bps, policy still accommodative

       Malaysia’s central bank raised its benchmark Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent, as expected by many economists following the bank’s guidance in November, and said its monetary policy stance still remains accommodative after the hike.
       It is Bank Negara Malaysia’s (BNM) first change in rates since a rate cut in July 2016 and the first rate increase since July 2014.
       Malaysia’s rate increase follows South Korea’s rate hike in November 2017, illustrating how monetary policy in Asian economies is starting to tighten in response to strong global growth that has already triggered rate hikes in the United States, Canada and the United Kingdom.
       ”With the economy firmly on a steady growth path, the MPC (monetary policy committee) decided to normalize the degree of monetary accommodation,” BNM said, adding that it also recognized the need to prevent the build-up of risks from interest being too low for a long time.
        The rate hike comes after the BNM at its last meeting in November 2017 signaled it was getting ready to raise rates by saying it may consider reviewing the current degree of monetary accommodation, leading to speculation that it would raise rates in the first quarter of 2018.
        In today’s statement, the BNM said its policy stance remains accommodative despite the rate hike, signaling that it is likely to raise rates further.
       However, it didn’t show its hand regarding the timing of any further hikes, merely saying it would continue to assess the balance of risk surrounding the outlook for growth and inflation.
        With global growth becoming more entrenched and synchronized, Malaysia’s exports are rising and helping pull up the domestic economy that will remain the key driver of growth this year as infrastructure projects continue and export and domestic companies boost capital spending.
       ”Overall, growth is expected to remain strong in 2018,” the BNM said.
        Malaysia’s economy expanded by an annual rate of 6.2 percent in the third quarter of last year, up from 5.8 percent in the second quarter, and was estimated to have grown between 5.5 and 6.0 percent in the full 2017 year by the International Monetary Fund in December.
        Growth this year was forecast to ease slightly to 5.0-5.5 percent by the IMF.
        Despite strong growth, Malaysia’s inflation rate and credit growth remain contained, with inflation in December of 3.5 percent and averaging 3.7 percent in 2017.
         This year the central bank expects inflation to ease, helped by a stronger exchange rate of the ringgit that will help offset higher energy and commodity prices.
        “However, the trajectory of headline inflation will be dependent on future global oil prices which remain highly uncertain,” the BNM said.
        After tumbling in the immediate aftermath of last year’s election of Donald Trump as U.S. president, Malaysia’s ringgit has been appreciating steadily since early 2017 and was trading at 3.8 to the U.S. dollar today, up 6.6 percent this year and 18 percent since the start of 2017.


       Bank Negara Malaysia issued the following statement: