KUALA LUMPUR: Malaysia’s central bank lifted interest rates by 25 basis points to 2.25 percent on Wednesday (July 6), marking the second boost this year.
The ceiling and floor rates of the overnight policy rate (OPR) corridor were raised to 2.50 percent and 2.00 percent, respectively.
Bank Negara Malaysia (BNM) said in a statement that the raise was chosen to further adjust the “degree of monetary accommodation” considering the Malaysian economy’s favorable development prospects.
It stated that this is consistent with the opinion of its Monetary Policy Committee (MPC) that “exceptional conditions necessitating a historically low OPR have continued to fade.”
The BNM decided to raise interest rates for the second time this year during its fourth monetary policy committee meeting of the year.
It went on to say that at the current OPR level, monetary policy remains accommodating and supportive of economic development.
“The MPC will continue to examine changing conditions and their implications for domestic inflation and growth.”
Any further adjustments to monetary policy settings will be moderate and gradual, ensuring that monetary policy remains accommodating to support sustainable economic growth in an environment of price stability,” said the BNM.
According to BNM, economic activity in the country has strengthened in recent months, with exports and retail expenditure statistics confirming the strong growth momentum, which is being supported by the shift to endemicity.
It stated that the global economy’s reopening and improved labor market conditions continue to underpin economic activity, however these have been partially offset by the impact of rising cost pressures, the military crisis in Ukraine, and China’s strong COVID-19 containment measures.
“Despite some relaxation in global supply chain constraints, inflationary pressures have continued to rise, owing mostly to elevated commodity prices and strong demand conditions.”
“As a result,” BNM noted, “central banks are expected to continue changing their monetary policy settings, perhaps at a faster rate, to lessen inflationary pressures.”
This is the central bank’s second increase in the OPR; the first, a 25 basis point increase in May, saw the interest rate rise from 1.75 percent to 2%.
During the COVID-19 crisis, the OPR was reduced in five cuts totaling 125 basis points from May 2019 to July 2020, lowering the interest rate from 3.0 percent to 1.75 percent.