Photographer: Sanjit Das/Bloomberg

Malaysia Signals Shift to Tightening Stance on Growth View

Updated on
  • Pressure rising for Southeast Asia to start tightening policy
  • Malaysia seen as among first to move in region next year

Malaysia’s central bank left interest rates unchanged while signaling borrowing costs may start to rise as economic growth gains momentum.

Key Details
  • The overnight policy rate was held at 3 percent, Bank Negara Malaysia said in a statement in Kuala Lumpur on Thursday
  • The decision was predicted by all 22 economists in a Bloomberg survey
  • Given the strength of the global and domestic macroeconomic conditions, the Monetary Policy Committee may consider reviewing the current degree of monetary accommodation, it said in the statement
  • Overall, the assessment is for growth to remain strong in 2018 with domestic demand the key source 
  • Headline inflation is projected to moderate in 2018; for 2017 as a whole, headline inflation is expected to be at the upper end of the forecast range

The Backdrop

Southeast Asian policy makers face rising pressure to start preparing for rate increases in the face of higher U.S. borrowing costs. Bank Negara Malaysia is forecast by economists as among the first to move. The economy is stronger with the government predicting growth of at least 5 percent until 2018 as it boosts infrastructure.

Inflation quickened to a five-month high of 4.3 percent in September, but is projected by the government to average between 3 percent and 4 percent this year. A general election due to be held by August 2018 is among reasons the central bank may hold off from raising borrowing costs just yet.

Economist Takeaways

  • “The central bank has taken cognizance of the strong domestic growth and has clearly indicated it can consider adjusting monetary conditions in coming months,” said Rahul Bajoria, a senior economist at Barclays Plc in Singapore. “We have a rate hike penciled in for the first quarter of 2018.”

Markets

  • The ringgit rose 0.3 percent to 4.2175 against the dollar as of 3:43 p.m in Kuala Lumpur after the decision
  • The benchmark stock index climbed 0.2 percent
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