Malaysia’s inflation currently isn’t misbehaving, giving the central bank room to keep up its “conditional pause”, according to Bank Negara Malaysia (BNM) assistant governor Fraziali Ismail.
“If it’s food prices and all the supply shocks, we have a history of seeing through those shocks. What matters is how it stokes demand. At this juncture, again, we don’t see inflation misbehaving in Malaysia,” he said in an interview with Bloomberg Television’s Haslinda Amin on Thursday (June 8).
Asked on further rate hikes, Fraziali said “that depends on how inflation behaves”. Fraziali, who’s worked at the central bank for almost three decades, reiterated the central bank’s 2023 average inflation forecast of between 2.8% and 3.8% in the interview in Kuala Lumpur.
“What we have seen so far, as I’ve mentioned earlier, inflation is a function of both supply and demand,” Fraziali said. “We have seen, for example, demand-driven inflation staying quite strong at this juncture. We don’t have an inflation problem.”
Easing inflation will give BNM the scope to ease monetary policy should the economy lose momentum. Consumer prices rose 3.3% in April from a year earlier, the slowest pace in 11 months.
While inflation has mostly moderated, boosting market bets that borrowing costs in the region have peaked, price growth is still proving persistent in some places. Canada delivered a surprise interest-rate hike on Wednesday, and earlier this week Australia unexpectedly increased its key rate for a second straight meeting and kept the door open for more hikes.
Malaysia’s central bank has delivered five rate increases in the past year, with a surprise hike early last month bringing borrowing costs back to pre-pandemic levels. Policymakers warned then that inflation may flare up again, with commodity prices and an adjustment to subsidies among the factors to watch.
“Many central banks have taken the step, us included, to have an intermittent pause, to reevaluate what has been the effects of our measures on the economy,” said Fraziali, who also sits on BNM’s Monetary Policy Committee. “In a way, when we do a conditional pause, let me stress it is a conditional pause — it depends on incoming data as well.”
A policy pause in Malaysia will offer the economy some relief, as analysts predict that the pace of expansion will slow to 4.2% this year, from 8.7% in 2022. Traders think the rate-hike cycle has ended, with ringgit one-year, one-day swaps reflecting bets that BNM will stand pat over the next 12 months.
Still, an impending reduction in subsidies may rekindle price pressures, and Fraziali noted that inflation depends on subsidy timing. Moody’s Investors Service has warned that a heatwave could translate into faster food inflation and another interest-rate hike.
