Malaysia: BNM hiked rates further in July – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comment on the recent interest rate decision by the BNM.

Key Takeaways

“Bank Negara Malaysia (BNM) delivered a back-to-back interest rate hike for the first time since 2010 today (6 Jul) with the Overnight Policy Rate (OPR) rising by 25bps to 2.25%. The decision was in line with market expectations, whereby 18 (including us) out of 19 polled by Bloomberg expected a 25bps hike while one expected no change.”

“In the latest monetary policy statement (MPS), BNM continued to cast a positive view on Malaysia’s economy despite rising global headwinds. Malaysia’s economy showed signs of firmer growth supported by the transition to endemicity, easing of restrictions and reopening of international borders. BNM signaled that headline inflation may be higher in some months due to base effect from electricity prices. However, upward inflation pressures are expected to be partly contained by existing price controls, fuel subsidies, and continued spare capacity.”

“BNM reiterated a ‘measured and gradual’ rate hike path going forward and its pledge to keep the OPR ‘accommodative and supportive of growth’ in the latest MPS. The current growth and inflation dynamics would allow BNM to deliver another 25bps rate hike at the next MPC meeting on 7-8 Sep. We maintain our OPR target at 2.50% by year-end, and 3.00% by mid-2023.”