Malaysia Central Bank Likely to Raise Benchmark Interest Rate Thursday, Economists Say

FeaturesDow Jones Newswires

Yantoultra Ngui

KUALA LUMPUR, Malaysia--Most economists polled by the Wall Street Journal this week expected Malaysia's central bank would raise its benchmark interest rate on Thursday, as the country's economic growth and inflation are expected to remain elevated.

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Bank Negara Malaysia will likely raise the overnight policy rate to 3.25% from the current 3% now, according to nine out of the 13 economists polled. The central bank has left the key policy rate unchanged since reducing it by 25 basis points in July 2016. It last raised interest rate by 25 basis points to 3.25% in July 2014.

"The economy has been in the negative real return region for most of 2017 due to the high inflation which we project the full-year average at 4%," Kuala Lumpur-based AmBank Research said Tuesday, adding that the current macro fundamentals open the door for the central bank to institute its first rate increase in 2018.

Malaysia's economy has been growing at a faster-than-expected pace in the first three quarters of last year, driven by robust domestic demand and strong exports. Gross domestic product grew 6.2% on-year in the third quarter of last year, the fastest pace in more than three years, and the momentum looks set to continue in view of positive global trade and firmer oil prices.

Inflation in the Southeast Asian nation grew 3.4% on-year in November and was expected to edged higher last month amid rising retail petrol prices, according to economists polled by The Wall Street Journal.

Nevertheless, some economists expect Bank Negara Malaysia might not raise rates owing to the current stronger ringgit, which should help ease inflationary pressure via imported inflation and also the upcoming general election that is due this year. The ringgit has hit a 20-month high against the US dollar on Tuesday.

"The moderation (inflation rate) would give some time to BNM (Bank Negara Malaysia) to maintain the prevailing policy rate at 3.00% in the upcoming meeting this week," Bank Islam Malaysia's chief economist Dr. Mohd Afzanizam Abdul Rashid said.

He expected the 25 basis point increase would only happen between March and May in view of strong economic growth and the need to maintain favorable real rates of return to savers.

Still, views were mixed on the number of hikes expected this year.

Khoon Goh, head of Asia research at ANZ Research, predicted a rate increase as early as Thursday. But he said further tightening would likely be required later in the year as economic growth and inflation are likely to remain high. ANZ expects another increase of 25 basis points in September to take the overnight policy rate to 3.50%, a level last seen in November 2008.

On the other hand, HSBC said only one rate rise was likely for 2018, as households' debt burden was high and more increases would raise the cost of servicing that debt.

"Much depends on inflation, which will likely stay low, and consideration must also be given to upcoming elections," said Radhika Rao, an economist at DBS Bank Ltd. in Singapore.

Write to Yantoultra Ngui at Yantoultra.Ngui@wsj.com

(END) Dow Jones Newswires

January 23, 2018 04:17 ET (09:17 GMT)

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