Bank Negara Malaysia Sends Signal that Monetary Policy May Soon Need to Tighten

May 8, 2014

For an 18th straight policy meeting, Malaysia’s monetary policymakers chose to leave the overnight policy rate at 3.0%.  There had earlier been hikes of 25 basis points each in March 2010, May 2010, July 2010 and May 2011. 

A press statement was released after today’s meeting that suggests that this long pause in tightening may be drawing to a close.  The statement speaks of above-target inflation and a buildup of financial imbalances and concludes with the following forward guidance:

Amid the firm growth prospects and inflation remaining above its long-run average, there are signs of the continued build-up of financial imbalances. While the macro and micro prudential measures have had a moderating impact on the growth of household indebtedness, the current monetary and financial conditions could lead to a broader build up in economic and financial imbalances. Going forward, the degree of monetary accommodation may need to be adjusted to ensure that the risks arising from the accumulation of these imbalances would not undermine the growth prospects of the Malaysian economy.

The next bi-monthly policy meeting is set for July 10.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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