Malaysia raises interest rate for first time in 3 years to curb inflation, debt

KUALA LUMPUR, Malaysia – Malaysia’s central bank Thursday raised its benchmark interest rate for the first time in three years to curb inflation and household debt as economic growth picks up.

Bank Negara Malaysia said it raised its overnight policy rate, used by banks to set lending rates, by a quarter percentage point, to 3.25 per cent. The rate was last raised in May 2011.

It said the change in monetary conditions was needed to “mitigate the risk of broader economic and financial imbalances” that could undermine the economy.

The central bank said the economy, which grew 6.2 per cent in the first quarter from a year earlier, is expected to remain on a steady growth path.

It said inflation, which rose to 3.2 per cent in May, is above average but contained.

The rate hike was widely expected amid higher inflation and a sharp rise in household debt, which has reached nearly 87 per cent of gross domestic product.

Inflation has crept following increases in electricity tariffs and cuts in fuel and other subsidies. It is expected to rise further with the implementation of a goods and services tax in April next year.