Malaysia Monetary Policy November 2022

At its last scheduled meeting of the year on 2–3 November, the Monetary Policy Committee of Bank Negara Malaysia (BNM) raised the overnight policy rate for the fourth consecutive time by 25 basis points, bringing it to 2.75%. The ceiling and floor of the rate corridor were also lifted to 3.00% and 2.50%, respectively. Markets had largely priced in the decision.

The Bank forecasted inflation to have peaked in Q3 and both the headline and core rates are expected to be gradually easing; that said, they have remained elevated nonetheless, reinforcing November’s hike. Notably, the BNM decided to preemptively raise its key rate to forestall excess demand pressure on prices. Moreover, risks to the inflationary outlook for 2023 remain skewed to the upside. Meanwhile, leading indicators point to economic activity gaining further steam in the third quarter—fueled by robust domestic demand—which provided leeway for the monetary policy tightening.

In its communiqué, the Bank remained dovish, maintaining its commitment to gradual and measured monetary policy adjustments. Furthermore, the BNM reemphasized its responsiveness to the evolution of economic conditions.

Looking ahead, Euben Paracuelles and Rangga Cipta, analysts at Nomura, commented:

“We continue to see 2.75% as the terminal rate, driven by our view of a worsening global growth backdrop to which BNM is highly sensitive. While we were expecting in the statement a clear shift to a more dovish stance, maintaining the same tone remains supportive of our forecast of the terminal rate given BNM’s continued emphasis on the downside risks to the overall growth outlook.”

Meanwhile, Debalika Sarkar and Sanjay Mathur, economists at ANZ, foresee additional hikes:

“Overall, we believe that BNM is not ready to pause. USD strength continues to be a risk for financial markets while the inflation outlook is uncertain. […] Although we now maintain our 2023 end-year policy rate forecast at 3.00%, we believe a reassessment will be necessary once a decision on recalibration of subsidies is made.”

BNM’s next meeting is scheduled for 18–19 January 2023.

FocusEconomics panelists project the overnight policy rate to end 2023 at 3.10% and 2024 at 3.17%.