Bank Negara to hike rates next quarter - Reuters poll

Bank Negara will keep its interest rate steady this week to support a still-nascent economic recovery, a Reuters poll showed, but start tightening policy next quarter to avert rising inflationary pressures.

That accommodative stance was in stark contrast to other major central banks and some of its Asian peers which are hiking interest rates at a much faster rate than earlier thought to rein in stubbornly high inflation.

For now, Bank Negara enjoys the liberty of keeping rates low as price pressures remain subdued but supply chain disruptions and the ongoing Russia-Ukraine war pose a major risk to that outlook.

The April 28-May 6 poll of 18 economists predicted Bank Negara to keep its overnight policy rate unchanged at 1.75 percent on Wednesday.

"We think that Bank Negara would want to see a durable economic recovery from the pandemic amid growing downside risks before normalising policy in the early second half of 2022, despite already having signalled the prospects to withdraw significant monetary support," said Chua Han Teng, an economist at DBS.

But widening interest rate differentials with some regional players and the US Federal Reserve has prompted a handful of participants, four of 18 economists to predict a rate hike to come as early as this month.

"In view of the expected improvement in economic conditions and upward price pressures, we think Bank Negara is on the cusp of raising the overnight policy rate," said Julia Goh, senior economist at UOB, who expected a 25 basis point hike in May.

"Bank Negara has also cautioned that keeping interest rates low for a prolonged period could lead to the emergence of financial imbalances with excessive risk-taking and unhealthy build-up of leverage."

However, the survey findings suggested a hike of 25 basis points next quarter to 2 percent, followed by another quarter-point hike in Q4, to end the year at 2.25 percent.

Those expectations were unchanged from an April poll.

Bank Negara now expects the Malaysian economy to grow between 5.3 percent and 6.3 percent this year, slightly lower than the previously projected 5.5 percent-6.5 percent, on higher global demand and stronger commodity prices.

Malaysia is a net exporter of oil and the second largest producer of palm oil.

Inflation was estimated to average between 2.2 percent and 3.2 percent in 2022, a little above the central bank's target range of 2 percent-3 percent.

- Reuters