Bank Negara Malaysia (BNM) unexpectedly raised its benchmark interest rate on Wednesday, citing a need to normalise monetary accommodation as the economy was resilient and it needed to manage persistent inflation.

The overnight policy rate was raised by 25 basis points to 3 percent. A Reuters poll of 25 economists had largely expected Bank Negara Malaysia to hold its overnight policy rate at 2.75 percent, with just four forecasting a rate hike.

BNM had kept rates unchanged at its two previous meetings this year as it sought to assess the impact of four consecutive hikes totalling 100 basis points in 2022.

The Southeast Asian economy has bounced back strongly from a pandemic-induced slump, with growth hitting a 22-year high of 8.7 percent in 2022 but slowing global demand has clouded the outlook for its exports of energy, commodities, and high-tech goods.

BNM said in a statement that the latest developments point towards further expansion in economic activity in the first quarter of 2023, driven by strong domestic demand, household spending and better labour market conditions.

While inflation was expected to moderate, core inflation would remain at elevated levels amid firm demand conditions, it said.

“With the domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalise the degree of monetary accommodation,” the central bank said, referring to its monetary policy committee.

The consumer price index in March grew 3.4 percent from a year earlier, its slowest pace in nine months, government data showed.

The central bank has forecast headline inflation to average between 2.8 and 3.8 percent in 2023, compared with 3.3 percent last year.

Malaysia’s economy was expected to grow 4-5 percent this year, BNM has said.

- Reuters