Malaysia leads region in raising interest
Source: Agencies |
March 5, 2010, Friday
|
Print Edition
Print Edition
MALAYSIA'S central bank raised its key lending rate yesterday, the first in the region to raise rates since the onset of the financial crisis, warning that record low borrowing costs could create financial imbalances that undermine economic recovery.
Bank Negara said yesterday it raised the overnight policy rate by a quarter percentage point to 2.25 percent. Outside of Australia, it was the first Asian central bank to raise rates as the global economy recovers from last year's recession.
Interest rates were slashed to historic lows around the world in the wake of the global financial crisis that erupted in late 2008. Central banks are now weighing the best time to withdraw emergency monetary stimulus without derailing economic recovery.
Still, Malaysia's rise came as a surprise, as most economists had expected it to happen a few months later.
Bank Negara said interest rates were reduced in early 2009 as "a key measure to avert a severe and fundamental economic downturn."
"These conditions no longer prevail. The domestic economy has since improved significantly and is now on a path to recovery," it said.
The bank's policy committee decided to raise the overnight lending rate as a step "toward normalizing monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process," the bank said.
It said prices would rise gradually this year, reflecting the strengthening Malaysian economy.
Bank Negara said yesterday it raised the overnight policy rate by a quarter percentage point to 2.25 percent. Outside of Australia, it was the first Asian central bank to raise rates as the global economy recovers from last year's recession.
Interest rates were slashed to historic lows around the world in the wake of the global financial crisis that erupted in late 2008. Central banks are now weighing the best time to withdraw emergency monetary stimulus without derailing economic recovery.
Still, Malaysia's rise came as a surprise, as most economists had expected it to happen a few months later.
Bank Negara said interest rates were reduced in early 2009 as "a key measure to avert a severe and fundamental economic downturn."
"These conditions no longer prevail. The domestic economy has since improved significantly and is now on a path to recovery," it said.
The bank's policy committee decided to raise the overnight lending rate as a step "toward normalizing monetary conditions and preventing the risk of financial imbalances that could undermine the economic recovery process," the bank said.
It said prices would rise gradually this year, reflecting the strengthening Malaysian economy.
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