Malaysian rate hike signals new trend

Looking ahead, inflation is, however, expected to remain above its long-run average. — Bank Negara Malaysia

Malaysia’s central bank welcomed Ramadan fasts and celebrations through July and August by raising the country’s interest rate for the first time in three years.

As many economists expected, Bank Negara Malaysia (BNM) announced after a routine meeting at the beginning of July that it decided to raise its overnight policy rate by 25 basis points. The new interest rate is 3.25 percent with floor and ceiling rates raised to 3 percent and 3.5 percent accordingly.

This is one of the Malaysia’s many attempts to normalise its monetary policy and calm down the country’s inflation that hit record 1.8 percent in June 2013.

The country’s GDP has been growing at an average of 5.7 percent annually since 2009 and is expected to remain consistent through 2020.The government is trying to shift its economy towards one driven by domestic growth.

Malaysia’s debt issues have also surfaced in the past five years. The government’s debt-to-GDP rate is 54.8 percent, the highest in five years. Some of the economists do not see this hike as favourable as others. It may be too small to have an impact on the overall economy but it certainly gives a signal to the market that Malaysia is serious about dealing with any excess in the economy and nip any formation of asset bubble in the bud.

Read more here at China Daily Asia Weekly about the signals this rate hike sends to the world and how is it going to affect Malaysia’s economy and its currency.

There may also be a follow-up rate hike this year for that BNM had done it the last seven times it raised the interest rate. But it all depends on the performance of the country’s economy for the remaining half of the year.

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