Malaysia’s key rate to increase to 3% in 1Q23

KUALA LUMPUR: Malaysia’s central bank will lift its key interest rate to pre-pandemic levels by the first quarter of 2023 as inflation pressures linger while the economy rebounds, according to a Bloomberg survey of economists.

Bank Negara is forecast to increase its overnight policy rate by 25 basis points in three moves through end-march next year, bringing the rate to 3% that was last seen in January 2020, a survey showed.

Policy makers have raised the key rate by a quarter-point each in May and in July and are next scheduled to meet on Sept. 8.

In the same survey, economists boosted their 2022 gross domestic product growth forecasts to 6.5%, higher than the previous estimate of 6.1%, and also exceeding the government’s projected range of 5.3% to 6.3% expansion.

Sustained domestic drivers in the second half of this year such as economic re-opening, pent-up demand, improving disposable incomes, and investment activity will serve as a favourable base in the third quarter amid global external headwinds, according to Chua Han Teng, economist at DBS Group Holdings Ltd in Singapore.

Economists also raised their price projections, seeing inflation at 3.5% or higher through the first half of 2023, the

same survey showed. The median estimates for average headline inflation this year and next are now at 3% and 2.5% from a previous 2.6% and 2.2%.

“Domestic growth remains vulnerable to several downside risks, mainly stemming from a global economic slowdown, amid persistently high inflation and aggressive monetary policy tightening by major central banks,” said Wan Suhaimie Saidi, head of economic research at Kenanga Investment Bank in Kuala Lumpur. — Bloomberg