Malaysia Unexpectedly Hikes Key Rate

Bank Negara: Malaysia unexpectedly raised its key overnight policy rate by 25 basis points to 2.00% on May 11th, after holding it at a record low of 1.75% since July of 2020, arguing that the pandemic impact on the economy had disappeared and that economic growth had reached a firmer level.

The central bank said the Malaysian economy was being supported by stronger domestic demand and sustained export growth, and added that the labor market had become tighter, raising income prospects, but downside risks related to the pandemic, the war in Ukraine, and deteriorating supply chain issues lingered.

On the price front, policymakers see headline inflation averaging between 2.2 and 3.2% this year but upward pressures would be limited by existing price controls and spare capacity in the economy. In its forward guidance, the central bank said further rate hikes would be done in a measured and gradual way.