Malaysia may raise rates tomorrow

Nikhilesh Bhattacharyya, an economist at Moody’s Inc in Sydney, comments on Malaysian’s inflation, monetary policy and the ringgit.

Bank Negara Malaysia will raise its overnight policy rate by 0.25 percentage point to 3.75 per cent when policy makers meet tomorrow, he said, following a government report yesterday that showed inflation in June accelerated to 7.7 per cent, the fastest in 26 years.

He had previously expected the central bank to keep the policy rate unchanged.

“The central bank governor has been dovish in her statements and she didn’t give any impression that rates are going up.

She was saying that inflation was coming in at 5 per cent or 6 per cent. Now that it has gone above 7 per cent, they might have to act. I don’t think they want to, but they should.

“I think it’s only going to be 25 basis points. The pressure has increased. The Philippines recently went with a 50 basis-point increase and Bank Negara should be worried about inflation expectations because it’s going to be really hard to control in the future.

“At this stage, they are still trying to grasp what’s going on in the economy and won’t be too aggressive with an increase.

“If they do raise, this can push the ringgit higher and reduce the pressure on the government budget from subsidies on fuel prices and things like that. Inflation might still go up a little bit more, but unlikely to double-digit levels.

“The focus is still on risks to growth, but the latest data shows that inflation has just gone up too high. The priority is definitely shifting toward inflation.” - Bloomberg

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