Malaysian Central Bank Raises Rates to 3.25%

Malaysia’s central bank raised its key interest rate for the first time in more than three years on Thursday, as widely expected, to help temper inflation and rising consumer debt.

Strong domestic consumption has helped underpin growth in the Southeast Asian economy, but rising household debt levels are posing an increasing risk when global interest rates rise.

Bank Negara Malaysia (BNM) hiked its overnight policy rate by 25 basis points to 3.25 percent, after keeping it steady since mid-2011. It had hinted of a monetary policy tightening to counter the “build-up of financial imbalances” at its last meeting in May.

On Thursday, it said that the “normalization” of monetary policy was needed to ward off risks of financial and economic imbalances that undermine growth. It said that its new stance remained supportive of the economy, which it saw showing continued strength in exports and private sector activity.

“Going forward, the overall growth momentum is expected to be sustained,” it said in its statement accompanying the decision.

The economy grew at a robust pace of 6.2 percent in the first quarter from a year earlier. The majority of economists polled by Reuters had anticipated a 25-basis-point hike as economic conditions at home and abroad improve and inflation stays high.

Many analysts expect interest rates to rise one more time before the end of the year due to inflationary pressure and robust growth. Industrial output grew at its fastest pace in three months in May, data released earlier on Thursday showed.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza