Bank Negara Malaysia raises key rate

KUALA LUMPUR: Malaysia’s central bank yesterday became the first in Southeast Asia to raise a key interest rate in years, moving to tap the brakes and “normalise” policy well before national elections and at a time of robust growth.

But economists strongly doubt the hike will be followed by another anytime soon.

“We suspect this will be a case of one and done,” Capital Economics said, asserting that growth “is set to slow and inflation is benign.’’

Bank Negara Malaysia (BNM) raised its overnight policy rate (OPR) by 25 basis points to 3.25%, saying its monetary policy committee “decided to normalise the degree of monetary accommodation as the economy remains firmly on a steady growth path.’’

The hike was its first since July 2014, and the first change in interest rates since July 2016, when there was a 25 basis point cut.

BNM said it “recognises the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time”.

“After the hike, monetary policy remains accommodative,” the central bank said.

A slim majority of economists polled by Reuters predicted that the central bank would raise its key rate. Some said that Malaysia was due for a hike, and authorities would prefer to make it well ahead of national polls that must be held by August.

The election will be a bitter fight between Prime Minister Najib Razak and Mahathir Mohamad, his one-time mentor and a former premier.

“The central bank has done a good job of getting this out of the way for now,” said Charu Chanana, an economist in Singapore with Continuum Economics. “A second hike won’t be needed unless growth overshoots the target.’’

Malaysia hasn’t yet reported fourthquarter economic growth. It said the third-quarter’s annual rate was 6.2%, the highest in more than three years.

Full-year inflation for 2017 came in at 3.7%, near the top of Malaysia’s 3-4% target range.