MARCH 10 — The decision by Bank Negara to hold interest rates steady is the right choice based on the current and expected outlook for the Malaysian economy during 2023.
The other components of the CPI index are very modest or flat. So, the Economy Minister is right to point out that over the last six months there is no particular problem of generalised increases in prices but a specific problem in two sectors. Looking at the breakdown of PPI at each stage of production crude materials and at intermediate goods inflation has dropped considerably in recent months.
The weakness extends to all the sectors and in particular to the industrial sector, where it is reflected not only in the prices but also in stagnation of output and tighter profit margins. This transition is not only happening in Malaysia but there are signs in other Asian countries, such as Indonesia.
The food price problem remains urgent and serious but it has to be addressed with sector-specific policies, not with the blunt instrument of interest rates.