The International Monetary Fund (IMF) has commended Bank Negara Malaysia (BNM) for moving “quite fast” to stem inflation within the country. This is following the gradual overnight policy rate (OPR) hikes that were made by BNM’s Monetary Policy Committee (MPC) over the past months.

According to the division chief of regional studies at IMF’s Asia and Pacific Department, Shanaka Peiris, BNM had acted even before inflation rose above its target bands. This, in turn, enabled Malaysia to manage and record one of the lowest inflation rates in the world.

For context, BNM had so far raised the OPR three times in 2022 – May, July, and September – with an increase of 25 basis points (bps) each time. As such, the OPR was raised from an all-time low of 1.75% to its current rate of 2.5%. Further hikes are expected in the near future to bring the OPR to above 3%. Meanwhile, Malaysia’s headline inflation eased for the first time in six months to 4.5% year-on-year in September 2022, from 4.7% in August.

Aside from acknowledging BNM’s swift action, Peiris further said that many other countries in the region are on course to bring down their inflation to below target by 2024. Her view is shared by the director of IMF’s Asia and Pacific Department, Krishna Srinivasan as well, although Srinivasan also went on to highlight that growth in the Asia and Pacific region is expected to moderate in 2022 and 2023.

“The region is facing three formidable headwinds which may prove to be persistent. They are global financial tightening, the war in Ukraine, and the sharp and uncharacteristic slowdown of the Chinese economy,” Srinivasan explained, adding that Asia’s strong economic rebound that was seen in early 2022 is now losing momentum.

Consequently, Srinivasan said that policymakers within Asia will need to prioritise several matters at this juncture to assist in its recovery. These include a further tightening of monetary policies to ensure that inflation is manageable, and that inflation expectations remain well anchored. Fiscal consolidation is also required to stabilise public debt and to support the monetary policy stance. This is as Asia is currently reported to be the largest debtor in the world – despite also being the largest saver – and several countries are at risk of slipping into debt distress.

Asia’s policymakers continue to face difficult trade-offs between supporting growth, lowering inflation, and managing external and financial stability risks. Learn more in our new Regional Economic Outlook for Asia and the Pacific: https://t.co/G0NDylqoCt pic.twitter.com/Ckh2LbHcmL

— IMF (@IMFNews) October 28, 2022

“Public and private debt dynamics are already worse following the pandemic because of slower growth and higher debt levels. Depreciations and rising interest rates could expose financial vulnerabilities from high leverage and unhedged balance sheets and further raise public debt ratios,” Srinivasan remarked.

Ultimately, Srinivasan emphasised the need for an integrated approach to tackle all the challenges in a timely and sensible manner. At the same time, parties in charge should also always be mindful of further downside risks and adapt accordingly, he said.

(Sources: IMF, Free Malaysia Today)

• TAGS:
• Bank Negara Malaysia
• BNM
• Core Inflation
• Headline Inflation
• Inflation
• Inflation Rate
• Inflationary Pressures
• International Monetary Fund
• Krishna Srinivasan
• Monetary Policy Committee
• MPC
• OPR
• OPR Cut
• Overnight Policy Rate
• Shanaka Peiris