Malaysia to resume policy tightening next year

Malaysia’s central bank (BNM) meets to set policy interest rates on Friday and will likely leave the overnight rate unchanged at 2.75%. The economic upswing is losing some momentum and inflation will probably stay contained for a while. What’s more, by starting early, BNM has earned the flexibility to vary the pace of monetary policy tightening. Nevertheless, BNM probably has more work to do and the overnight rate should rise further over the next 12 months. Our best guess is that the next move will come in March 2011.