Malaysia’s policy rate to go up by 50bps or less this year: S&P Global

S&P Global Ratings (S&P) anticipates Malaysia’s policy rate to increase by 50 basis points (bps) or less this year due to the inflationary impact of the Russia-Ukraine conflict and capital outflow pressure, amid a more hawkish United States Federal Reserve (Fed).

S&P Asia-Pacific chief economist Louis Kuijs said higher inflation and rising US interest rates are weighing heavily on AsiaPacific economies.

Given the current environment, he said S&P expects that in regions where inflation already exceeds targets, or which are vulnerable to capital flight, central banks will be forced to raise interest rates.

However, where neither inflation nor capital flight is a major issue, central bankers will focus on growth.

“This will result in a three-speed policy setting across Asia-Pacific.

“Many economies are likely to see significantly higher rates – some may lift rates moderately, while the rest (China and Japan) probably will not tighten at all,” he said.

He said Asia-Pacific’s monetary policymakers will face difficult trade-offs this year as the Russia-Ukraine conflict is adding to global inflation, while the increasingly hawkish Fed is tightening its policies, and has signalled that it would significantly reduce its balance sheet.

These have put pressure on the region’s central banks to raise policy rates to anchor inflation expectations, retain credibility, support the national currency, or head off financial instability.

“However, as the effect of the conflict and the US Fed shift weighs on economic growth, we anticipate some central banks will tighten as little as possible, or not at all,” added Kuijs.