Malaysia’s Central Bank Raises Interest Rates

• Malaysia’s Central Bank Raises Interest Rates

Bank Negara Malaysia raised overnight policy rate by 25 basis points to 3.25 percent for the first time in more than three years on Thursday, according to the statement released by the central bank in Kuala Lumpur.

Malaysia is the first Southeast Asian nation to tighten monetary policy following years of lower rates amid fall in global commodity prices that forced the nation to introduce Goods and Services Tax.

The apex bank had signalled in November that it may adjust monetary policy to accommodate improved growth and projected 5.5 percent growth for 2018. However, experts believe building price pressures due to rising fuel and food prices may have pressured the apex bank to raise rates, especially with the local currency, Ringgit, plunging more than 33 percent in the last two year against the U.S. dollar.

“With the economy firmly on a steady growth path, the Monetary Policy Committee decided to normalize the degree of monetary accommodation,” the central bank said in the statement. “At the same time, the MPC recognizes the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time.”

The inflation rate rose 3.5 percent year-on-year in December, but the government predicts consumer prices will average between 2.5 percent to 3.5 percent this year.

The Ringgit has gained about 3 percent against the U.S. dollar this year.