Malaysia Signals Shift to Tightening Stance on Growth View

Malaysia’s central bank left interest rates unchanged while signaling borrowing costs may start to rise as economic growth gains momentum.

The Backdrop

Southeast Asian policy makers face rising pressure to start preparing for rate increases in the face of higher U.S. borrowing costs. Bank Negara Malaysia is forecast by economists as among the first to move. The economy is stronger with the government predicting growth of at least 5 percent until 2018 as it boosts infrastructure.

Inflation quickened to a five-month high of 4.3 percent in September, but is projected by the government to average between 3 percent and 4 percent this year. A general election due to be held by August 2018 is among reasons the central bank may hold off from raising borrowing costs just yet.

Economist Takeaways

• “The central bank has taken cognizance of the strong domestic growth and has clearly indicated it can consider adjusting monetary conditions in coming months,” said Rahul Bajoria, a senior economist at Barclays Plc in Singapore. “We have a rate hike penciled in for the first quarter of 2018.”

Markets

• The ringgit rose 0.3 percent to 4.2175 against the dollar as of 3:43 p.m in Kuala Lumpur after the decision
• The benchmark stock index climbed 0.2 percent

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