Bank Negara raises key interest rate to 2.5pc

Most economists polled say they expect further increases in the benchmark Overnight Policy Rate before the end of the year

Bank Negara Malaysia yesterday raised the Overnight Policy Rate (OPR) by another 25 basis points (bps) to 2.5 per cent, in a further move to normalise monetary conditions.

The move to raise borrowing costs, through the benchmark interest rate, had been widely anticipated by the market.

Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said that at the new level, the stance of the monetary policy continues to be accommodative and supportive of economic growth.

It was the second time this year that the central bank had raised the OPR, after the 25 bps increase in March.

Most economists polled by Business Times said they expected further increases in the benchmark interest rate before the end of the year.

"The rates were initially brought down under exceptional conditions, but (they) do not prevail as the Malaysian economy is firmly on the path of recovery and we expect it to improve in the remaining quarters on domestic demand, investment activities and trade with Asia remaining robust. Bank Negara will continue to monitor the situation in our next meeting in July," Zeti said.

Inflation is moderate and the headline inflation rate, as measured by the change in the Consumer Price Index, increased to 1.3 per cent in the first quarter. - By Rupa Damodaran