View Full Version : Malaysia raises interest rates for first time

01-12-2005, 02:24 AM

Nov. 30 (Bloomberg) -- Malaysia's central bank raised its benchmark interest rate today for the first time in more than seven years to curb inflation.

Bank Negara Malaysia will increase its key overnight policy rate 30 basis points to 3 percent immediately, the central bank said today. A basis point is 0.01 percentage point. Nine of 14 economists in a Bloomberg survey expected the central bank, which last raised interest rates in February 1998, to raise borrowing costs by the end of the year.

``Inflation has edged up, mainly on account of higher energy prices and other costs,'' Central Bank Governor Zeti Akhtar Aziz said in the statement today after releasing figures showing Malaysia's economy grew a faster than expected 5.3 percent in the third quarter from a year earlier. ``Bank Negara will closely monitor developments to ensure that Malaysia continues to have sustainable economic growth in an environment of price stability.''

Central banks in Asian countries including South Korea, Taiwan, Indonesia and Thailand have increased interest rates this year to curb inflation fuelled by rising oil prices. Malaysia's central bank, which had kept borrowing costs unchanged since the 1997-98 Asian financial crisis, wants to damp inflationary pressures.

``A hike in rates this week marks the beginning of a tightening cycle,'' said Lee Heng Guie, chief economist at CIMB Securities Sdn. in Kuala Lumpur, in a research note yesterday. ``We expect more increases'' of 50 to 100 basis points next year.

Malaysia's inflation rate surged to a high of 3.7 percent in August this year, and remains above 3 percent in October, amid rising fuel costs and higher taxes on tobacco and alcohol. Rising inflation prompted Prime Minister Abdullah Ahmad Badawi in September to cut road taxes and announce a temporary halt to subsidy cuts that had led to higher retail gasoline prices.

``So far, administrative policies to fight inflation have not had the desired effects,'' said Leslie Tang, an economist at UOB Kay Hian Research in Singapore. ``Rates will have to keep moving up in 2006 to dampen inflationary pressures.''

Malaysia will also need to raise its interest rates further next year to close the gap between local and U.S. rates and limit the outflow of capital seeking higher returns, said Chua Hak Bin, an economist at DBS Group Holdings Ltd. in Singapore, who expects the central bank to raise its key rate by another 50 to 75 basis points in 2006.

Malaysia's foreign-exchange reserves dropped 1.8 percent to $75.7 billion in the two weeks ended Nov. 15, from $77.1 billion on Oct. 31. Reserves have declined 5.9 percent from a record $80.4 billion on Aug. 15. The central bank hasn't given a reason for the decline in reserves.

South Korea's central bank on Oct. 11 raised its overnight call rate by a quarter percentage point to 3.5 percent, the first increase in more than three years. Bank Indonesia on Oct. 4 raised its reference rate for bill sales by a full point to 11 percent. Taiwan's central bank increased its key rate for a fifth consecutive quarter by 0.125 percentage point to 2.125 percent on Sept. 15.

Faster economic growth next year may allow Malaysia's central bank to raise interest rates further. The $118 economy may grow 5 percent this year and 5.2 percent in 2006, according to the median forecast of 17 economists in a Bloomberg survey.

``The growth outlook should be firmer by the first half of 2006 on the back of an export-led pick-up in real GDP,'' said Suhaimi Ilias, chief economist at Affin Securities Sdn. in Kuala Lumpur, before the rate hike was announced. ``We expect Bank Negara Malaysia to take the opportunity to normalize interest rates during this period by raising the overnight policy rate by 25 to 50 basis points.''

The U.S. Federal Reserve raised its benchmark interest rate for a 12th consecutive time to 4 percent on Nov. 1. Until today, Bank Negara's overnight policy rate had been unchanged at 2.7 percent since it was introduced in April 2004 as a benchmark for the country's 10 domestic lenders and 13 foreign-owned banks to set their respective prime rates by.

The ringgit traded at 3.7781 per dollar as at 11:48 a.m. local time today. The currency has declined in the past nine weeks, losing 0.8 percent from as high as 3.7463 on Aug. 2. Malaysia scrapped its ringgit peg on July 21 in favor of a managed float system against a basket of currencies.

``We do expect that Malaysia's interest rate would trend higher beginning in the second quarter of 2006 on the back of stronger economic growth and faster inflation still, as we expect a few more hikes in petrol and diesel prices,'' said Maslynnawati Ahmad, an economist at Avenue Securities Sdn. in Kuala Lumpur, commenting before today's announcement.

Still, higher interest rates may hurt consumer spending, said Tan Hai Hsin, director of Retail Group Malaysia, which conducts a quarterly retail sales survey for the Malaysian Retailers Association.

``An increase in interest rate in the near future is not good for retail sales,'' he said. ``It will definitely hurt retail sales in durable goods.''

01-12-2005, 02:45 AM
does this mean our housing loans repayment is gonna go up... :(

01-12-2005, 11:37 AM
Aiyo~~ die lor.... :(
Issit means that BLR is going to increase to 9%??? :eek:

gotta eat grass liaw~~ price of everything increased, except our salary :(

01-12-2005, 01:12 PM
Aiyo~~ die lor.... :(
Issit means that BLR is going to increase to 9%??? :eek:

gotta eat grass liaw~~ price of everything increased, except our salary :(

nope nope. BNM revised the OPR to 3% not increased by 3%. Not sure how much the BLR would be affected just yet. Maybe as little as 0.5% or to the most 1%.

01-12-2005, 02:27 PM
Err...the current OPR is at 2.7%...what BNM says...increase 30 points TO 3%...so the difference in the rise...is 0.3%...:o

The remaining is Bank's admin expenses etc etc which then gives you the BLR(%)

Hence...the commercial banks would certainly NOT absorbed the rise on their own...SO...those borrowings which are based on BLR% + 2% for example...would raise it to BLR% + 0.3% + 2%...Comprender?

Ahem...is there any financialist or economist here?

01-12-2005, 02:37 PM
Would the FD interest rates go up too, how much? ;)

01-12-2005, 07:41 PM
Would the FD interest rates go up too, how much? ;)

When interest rate go up, FD and savings interest rate will go up.

02-12-2005, 08:06 AM
so far only HSBC say they will revise their rates. other banks are taking a look see, and waiting for BNM to fix deposit rates, which is a factor in deciding how much to raise their own BLRs.

Banks are free to set their own BLR since Apr 2004.

03-12-2005, 06:22 PM
Ini macam mati-lah.... Better pay off the new housing loan from that stupid big, strong and friendly Catah Bank! :rolleyes: