Survey: Malaysia’s key rate to rise to 3% in 1Q23

MALAYSIA’S central bank will lift its key interest rate to pre-pandemic levels by the first quarter of 2023 (1Q23) as inflation pressures linger while the economy rebounds, according to a Bloomberg survey of economists.

Bank Negara Malaysia is forecast to increase its Overnight Policy Rate by 25 basis points in three moves through end-March next year, bringing the rate to 3% that was last seen in January 2020, a survey showed. Policymakers have raised the key rate by a quarter-point each in May and in July and are next scheduled to meet on Sept 8.

In the same survey, economists boosted their 2022 GDP growth forecasts to 6.5%, higher than the previous estimate of 6.1%, and also exceeding the government’s projected range of 5.3%-6.3% expansion.

Sustained domestic drivers in the second half of this year (2H22) such as economic reopening, pent-up demand, improving disposable incomes and investment activity will serve as a favourable base in the 3Q amid global external headwinds, according to Chua Han Teng, economist at DBS Group Holdings Ltd in Singapore.

Economists also raised their price projections, seeing inflation at 3.5% or higher through 1H23, the same survey showed. The median estimates for average headline inflation this year and next are now at 3% and 2.5% from a previous 2.6% and 2.2%.

“Domestic growth remains vulnerable to several downside risks, mainly stemming from a global economic slowdown, amid persistently high inflation and aggressive monetary policy tightening by major central banks,” said Kenanga Investment Bank head of economic research Wan Suhaimie Saidi. —Bloomberg /TMRpic