Fraziali: Malaysia’s inflation is not ‘misbehaving’

“In a way, when we do a conditional pause, let me stress it is a conditional pause – it depends on incoming data as well,” said Fraziali.

KUALA LUMPUR: Malaysia’s inflation currently isn’t misbehaving, giving the central bank room to keep up its “conditional pause,” according to a senior official.

“In terms of food prices and all the supply shocks, we have a history of seeing through those shocks,” Bank Negara’s assistant governor Fraziali Ismail said in an interview with Bloomberg Television’s Haslinda Amin yesterday.

“What matters is how they stoke demand. At this juncture, again, we don’t see for inflation to misbehave in Malaysia.”

When asked if there is a case to continue hiking rates, Fraziali said “that depends on how inflation behaves.” Fraziali, who’s worked at the central bank for almost three decades, reiterated its 2023 average inflation forecast of between 2.8% and 3.8%.“What we have seen so far, I’ve mentioned earlier, inflation was 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.”

The debate surrounding inflation and rate hikes intensified this week as central banks in Canada and Australia unexpectedly boosted borrowing costs to subdue price growth. Malaysia may face pressure to tighten further to prevent outflows if higher US interest rates continue to bolster the dollar.

The ringgit weakened 0.4% to 4.618 per dollar while the FBM KLCI was down 0.4% at the midday break. The yield on three-year government bonds rose two basis points to 3.45%.

The central bank has raised interest rates five times 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 in subsidies among the factors to watch.

“Many central banks have taken the step, us included, to have an intermittent pause, to re-evaluate what has been the effects of our measures on the economy,” said Fraziali, who also sits on the 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. — Bloomberg

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