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Malaysia central bank to hike rates again in September, says analysts

Malaysia central bank to hike rates again in September, says analysts

As was widely predicted, Malaysia’s central bank raised interest rates by 25 basis points on 6 July to 2.25%, the first consecutive monthly rise in more than a decade, as it bids to tackle rising inflation and support the ringgit.

The move immediately prompted domestic banks to rise their domestic rates. Public Bank has already raised its Base Rate (BR) and Base Lending Rate (BLR)/Base Financing Rate (BFR) by 25 basis points, or 0.25%.

In a statement it said: “The bank’s BR will increase to 2.77% from 2.52% and the BLR/BFR will increase to 5.97% from 5.72%. At the same time, Public Bank’s fixed deposit rates will be correspondingly increased by 0.25% across all tenures, effective on the same date [8 July].”

And Alliance Bank Malaysia is to raise its base rate, base lending rate and base financing rate, also by 25 basis points, effective from 13 July 13.

The bank, in a statement, said its BR will be adjusted from 2.82% to 3.07% per annum, and BLR and BFR from 5.67% to 5.92% per annum.

“The revision will apply to all existing loans and/or financing pegged to the BR, BLR, and BFR,” it said. The bank will also adjust its fixed deposit rates upwards on the same effective date.

Bank Negara Malaysia, which has said it will take a ‘measured and gradual’ approach, was expected to move more slowly to raise rates compared with its global peers.

According to a Reuters survey, 12 of 22 economic analysts polled predicted another 25 basis point rise in September to 2.50%, while the other 10 expected no change after the July hike. For November, 12 of 22 analysts in the poll predicted rates at 2.50%, eight said 2.75%, while two said 2.25%.

Derrick Kam, Asia economist at Morgan Stanley, commented: “BNM will be mindful of potential upside pressure to inflation stemming from recent increases in minimum wages, upward adjustments in price ceilings for certain food products, and a pickup in demand-pull inflation on the back of economic reopening.”

Inflation rose to 2.8% in May from 2.3% in April. The Malaysian ringgit lost ground last quarter and has weakened nearly 6% so far this year, raising the prospect of imported inflation pressure.

“The Malaysian ringgit has been falling against the greenback due to aggressive rate hikes by the U.S. Federal Reserve, and raising the overnight policy rate will help to shore up the currency by maintaining the interest rate differential,” said Denise Cheok, an economist at Moody’s Analytics.

ActivTrades trader Dyogenes Rodrigues Diniz said the US dollar continues to strengthen against the ringgit, and is now at its highest level since March 2020. And the US dollar is likely to appreciate further against other currencies, he said.


More help for co-operatives

Some RM100m ($23m) from the Agrofood Fund will be channelled to the Malaysia Co-operative Societies Commission (SKM), to help co-operatives to expand the agrofood industry, Prime Minister Ismail Sabri Yaakob has announced.

In his speech to the launch of National Cooperatives Month 2022 (BKK2022), the PM said this was due to the government’s “confidence in the cooperatives’ ability in ensuring national food security”.

He said: “Hopefully, this can assist cooperatives in expanding the agrofood industry and the rearing of chicken in particular.

“At the same time, it can help cooperatives increase food production, which subsequently tackles the issue of the rising cost of living that leaves a big impact on Malaysians, especially those from the lower income brackets,” he said, adding that the government also agreed to provide a special allocation of RM10mil to the Entrepreneur Development and Cooperatives Ministry.

The grant is to be used to organise exhibitions and expos, working with associations and non-governmental organisations, he said.