The division chief of regional studies at its Asia and Pacific Department, Shanaka Peiris, said Bank Negara Malaysia (BNM) acted even before inflation went up above the target bands.
BNM raised interest rates by 25 basis points (bps) at each of the last three meetings of the monetary policy committee to bring the overnight policy rate (OPR) to 2.5% currently.
Further increases are expected at the next meeting in November and again next year to bring the OPR to above 3%.
The headline inflation moderated to 4.5% in September from 4.7% in August.
The Malaysian gross domestic product (GDP) registered a stronger-than-expected growth of 8.9% in the second quarter of 2022 (Q2 2022), up from 5% in the previous quarter.
At a hybrid press conference on the release of “The Regional Economic Outlook, Asia and Pacific: Sailing into Headwinds” report today, Peiris said many other countries in the region would be expected to stay on course to bring down inflation to below target by 2024.
On the outlook for the region, the director of IMF’s Asia and Pacific Department, Krishna Srinivasan, said growth in the Asia and Pacific region is expected to slow down in 2022 and 2023.
“The region is facing three formidable headwinds which may prove to be persistent. They are global financial tightening, the war in Ukraine, and the sharp and uncharacteristic slowdown of the Chinese economy,” he said.
This challenging conjuncture poses difficult trade-offs for policymakers, he added.
Srinivasan warned that Asia’s strong economic rebound early this year is losing momentum, as seen in the weaker-than-expected second quarter.
“We have cut growth forecasts for Asia and the Pacific to 4% this year and 4.3% next year, down by 0.9 and 0.8 percentage points respectively,” he said.
According to the IMF, while inflation rose more modestly in Asia in 2021 than it did in other regions, the sharp bout of volatility in global commodity markets after Russia’s invasion of Ukraine in February put additional pressure on Asia’s headline inflation in the first half of 2022.
This increase has been driven by rising food and fuel prices — particularly in Asian emerging markets and developing economies — but also reflects higher core inflation as the region recovers, it said.
Against this backdrop, Srinivasan stressed several priorities for policymakers with one of them being further tightening of monetary policy required to ensure that inflation returns to target and inflation expectations remain well anchored.
He said fiscal consolidation is needed to stabilise public debt and support the monetary policy stance. Asia is now the largest debtor in the world besides being the biggest saver, and several countries are at high risk of debt distress.
“Public and private debt dynamics are already worse following the pandemic because of slower growth and higher debt levels. Depreciations and rising interest rates could expose financial vulnerabilities from high leverage and unhedged balance sheets and further raise public debt ratios.
“As interest rates rise, this will raise the fiscal balance needed to stabilise debt. An integrated approach to tackling these challenges in a timely and well-calibrated way is of the essence while being mindful of further downside risks,” he added.