Malaysia has room for tighter monetary policy, Zafrul says

Malaysia’s economic growth will provide the central bank with more room to tighten monetary policy as the Federal Reserve increases interest rates, caretaker Finance Minister Zafrul Aziz said.

Gross domestic product data to be released this week will show the economy was stronger than expected in the third quarter, he said in an interview on Saturday.

Bank Negara Malaysia increased its benchmark interest rate for a fourth straight meeting last week. At 2.75%, the rate remains below pre-Covid level of 3%, Zafrul said while on a campaign trail in his constituency of Kuala Selangor for the Nov. 19 general election.

“We raised it by 25 basis points but the US Fed raised by 75 basis points,” the minister said. “The differential is still large, almost 200 basis points” though the US is fighting inflation more than Malaysia, he said.

The central bank is projecting full-year growth to be at the upper end of its 5.3%-6.3% forecast. It will release third-quarter GDP data on Nov. 11. Economists forecast year-on-year growth of 12.1% for the third quarter, according to the median estimate in a Bloomberg survey.

“Our GDP growth is still strong despite the four rate hikes,” Zafrul said. With growth stronger than expected, “that leaves the central bank with more room on monetary policy,” he said.

The central bank is under pressure to keep inflation in check while supporting growth. Nearly 80% of respondents in a recent survey said that the government’s priority should be either restoring and boosting the economy, or combating poverty and managing living costs.

The central bank reaffirmed last week that it is not on any “pre-set” rate course and that decisions will remain data driven, “measured and gradual.” The latest tightening will “pre-emptively” manage the risk of excessive demand on price pressures and balance the risks between domestic inflation and sustainable growth, it said. – BLOOMBERG