Malaysia Raises Benchmark Interest Rate to 3.25%

At its July 10th meeting, Bank Negara Malaysia decided to raise the overnight policy rate for the first time in three years by 25 bps to 3.25 percent, aiming to curb rising inflation and household debt. The floor and ceiling rates of the corridor for the overnight policy rate are correspondingly raised to 3.00 percent and 3.50 percent, respectively.

Statement by the Bank Negara Malaysia:

After moderating in the first quarter, the global economy has resumed its path of gradual recovery. Economic activity in the major advanced economies continues to expand at a modest pace. In Asia, the better external environment is supporting growth amid continued expansion in domestic demand. In this environment, international financial markets have remained relatively stable.

For Malaysia, latest indicators point to continued strength in exports and private sector activity. Going forward, the overall growth momentum is expected to be sustained. Exports will continue to benefit from the recovery in the advanced economies and from regional demand. Investment activity is projected to remain robust, led by the private sector. Private consumption will be supported by stable income growth and favorable labor market conditions. The prospects are therefore for the Malaysian economy to remain firmly on a steady growth path.

Inflation has been relatively stable as the effects of the price adjustments for utilities and energy continue to moderate. Demand driven inflation remains contained. Looking ahead, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors. 

Amid the firm growth prospects and with inflation remaining above its long-run average, the MPC decided to adjust the degree of monetary accommodation. This normalization of monetary conditions also aims to mitigate the risk of broader economic and financial imbalances that could undermine the growth prospects of the Malaysian economy. At the new level of the OPR, the stance of monetary policy remains supportive of the economy.

Further review of the degree of monetary accommodation will depend on the MPC’s assessment of the balance of risks surrounding the outlook for domestic growth and inflation.  At the same time, the MPC will also continue to monitor for risks of destabilizing financial imbalances.

Malaysia Raises Benchmark Interest Rate to 3.25%

Bank Negara Malaysia | Joana Taborda |
7/10/2014 11:29:08 AM