Malaysia’s central bank is raising its benchmark interest rate for the first time in more than three years. Even so, there are parts of the economy that may prove troublesome. Rian Maelzer reports from Kuala Lumpur.
Malaysia is the first Southeast Asian country to raise rates this year, highlighting the government’s confidence in its economic growth.
Malaysia central bank raises benchmark interest rateMalaysia's central bank is raising its benchmark interest rate for the first time in more than three years. Even so, there are parts of the economy that may prove troublesome. Rian Maelzer reports from Kuala Lumpur.
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This was only the 11th time in the past decade Bank Negara had adjusted the overnight policy rate, while the region’s other central banks had averaged 27 adjustments over the same period.
The rate increase is seen as a step to try to stem the sharp rise in household debt. Spurred on by easy credit, household debt rose from 76 to more than 86 percent of GDP last year and is now close to the highest in the region.
The central bank has set up an agency to help people who are struggling with high debts. It offers free counseling, and more than 100,000 people have sought the agency’s help to restructure their debts.
Another goal of the rate increase is to dampen inflation, currently at 3.5 percent, without dampening growth prospects. Malaysia’s economy grew close to 6 percent in the first half of the year, although it’s expected to moderate in the second half.
There will be more inflationary pressures as Malaysia begins implementing a goods and services tax next April. Economists say Bank Negara’s decision to raise rates now is a prudent move.