Bank Negara hikes interest rate to tame inflation

The central bank raised its key interest rate today for the first time since 2020, in a surprise move aimed at taming inflation.

Bank Negara Malaysia joins other central banks around the world in tightening monetary policy as the cost of everyday goods is pushed higher by supply chain problems and surging commodity prices.

The bank lifted its main rate 25 basis points to 2%, despite most economists having predicted no change until later in the year.

It was the first hike since July 2020, when rates were slashed to a historic low to combat the impact of the coronavirus pandemic.

“Inflationary pressures have increased sharply due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US,” the central bank said in a statement.

With life returning to normal as the pandemic abates, the Malaysian economy is now on a “firmer footing”, giving policymakers room to start tightening policy to head off inflation, it said.

Malaysia’s headline inflation was 2.2% in March, lower than in many other countries, but food inflation jumped 4% and economists expect further increases.

Fears are growing that inflation could accelerate further worldwide as China’s pandemic lockdowns heighten pressure on global supply chains and the Ukraine war pushes up commodity prices.