Malaysia Raises Interest Rates for First Time in 3 1/2 Years -- Update

By FeaturesDow Jones Newswires

KUALA LUMPUR, Malaysia--Malaysia's central bank raised interest rates for the first time in 3 1/2 years Thursday, joining a global trend toward tighter monetary policy.

The bank raised its overnight policy rate by a quarter of a percentage point to 3.25%

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The move was largely expected, following guidance by Bank Negara Malaysia at its previous meeting when it said that improving economic conditions warranted a review of its policy.

Nine of 13 economists surveyed by The Wall Street Journal had expected that quarter-point increase from Bank Negara. The bank had left the rate unchanged since its rate cut in July 2016.

"With the economy firmly on a steady growth path, the MPC (monetary policy committee) decided to normalize the degree of monetary accommodation," Bank Negara Malaysia said. It added that the stance of monetary policy remained accommodative at the current rate.

The increase follows a global move toward tighter policy led by the Federal Reserve. In Asia, the Bank of Korea raised its rates in November for the first time in six years, while China has nudged up its short-term market rates.

The decision signals the Malaysian central bank's confidence that the economy is strong enough for firms and households to withstand higher borrowing costs and a stronger currency.

"Looking ahead, the strong growth momentum is expected to continue in 2018, sustained by the stronger global growth and positive spillovers from the external sector to the domestic economy," Bank Negara Malaysia said. It added that domestic demand will also remain the key driver of growth.

Malaysia's economy expanded at a faster-than-expected pace in the first three quarters of last year. Strong trade and firmer oil prices are expected to continue driving growth in 2018, helped by government spending ahead of general elections due later in the year.

A softer dollar, expectations of a rate increase as well as higher oil prices--Malaysia is a net oil exporter--have lifted the ringgit, which has been the best performing currency in Asia so far this year.

It appreciated 8% against the U.S. dollar since the bank's hawkish policy statement in November, and economists see scope for further gains.

Write to Yantoultra Ngui at

(END) Dow Jones Newswires

January 25, 2018 02:58 ET (07:58 GMT)