Malaysia raises key interest rate for 1st time in over 4 years

© Kyodo News

Malaysia's central bank unexpectedly raised its key interest rate Wednesday for the first time in more than four years in an attempt to tame inflation.

The overnight policy rate was raised by 0.25 percentage point to 2 percent from a historic low of 1.75 percent that had been maintained since July 2020.

The decision came amid signs of an economic recovery from the coronavirus pandemic, as well as growing inflationary pressure driven by higher commodity prices and disruptions of supply chains resulting from the war in Ukraine.

"The sustained reopening of the global economy and the improvement in labor market conditions continue to support the recovery of economic activity," Bank Negara Malaysia said in a statement following its monetary policy meeting.

The central bank, however, said that "risks to growth remain," citing uncertainties such as a weaker-than-expected global growth, further escalation of geopolitical conflicts and adverse developments related to COVID-19.

The bank projected Malaysia's headline inflation to average between 2.2 percent and 3.2 percent in 2022.

The last time it raised the key policy rate was in January 2018 by 0.25 percentage point to 3.25 percent. The rate was gradually reduced as the economy took a hit following the pandemic.