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BENGALURU: Malaysia's central bank will wait until at least July before raising interest rates from a record low as it waits for the economic recovery to take hold, a Reuters poll found.

Although inflation climbed above Bank Negara Malaysia's (BNM) 2%-3% outlook range in November, it was expected to fall back within that range in the coming months, giving the central bank room to hold fire on rate hikes for now.

The Jan. 10-14 poll of 23 economists suggested the BNM will keep its overnight policy rate at 1.75% until the end of June. All 23 expect no change on Thursday.

"The Bank Negara Malaysia will remain accommodative to support growth at least until mid-2022 when we expect the recovery to become self-sustaining," noted Debalika Sarkar, an economist at ANZ.

Asian FX, stocks falter on Fed hike fears; won takes breather after BOK tightens

"We expect the first rate hike only in Q3 2022 and this will be more symptomatic of policy normalisation than tightening."

That view was in line with median predictions in the poll. Economists forecast the central bank would raise its key interest rate to 2.00% in the third quarter.

Headline inflation rose to 3.3% in November due to global supply chain disruptions and rising fuel prices but it was expected to stabilise this year and next. It was forecast to cool from 2.5% in 2021 to 2.1% and 2.0% this year and next.

However, supply chains could be further impacted by the COVID-19 pandemic.

Indeed, six of seven respondents who answered an additional question said risks to their inflation outlook were skewed more to the upside.

"Supply disruptions appear to be easing but could get worse if the pandemic forces more lockdowns in major economies," said Vincent Loo, senior economist at KAF Investment Bank. The slow pace of tightening comes as the US Federal Reserve has taken a decisively hawkish turn in its monetary policy and was expected to hike as early as March.

"Similar to lots of other Asian central banks, BNM have tended to follow the Fed in the past. But given how big the economic impacts of the virus have been, BNM would be firmly focused on domestic factors," said Alex Holmes, emerging Asia economist at Capital Economics.

"So I don't think the Fed hiking will force them into hiking as well".

A growing threat from the Omicron variant of the coronavirus alongside a significant economic slow down in China, Malaysia's largest trade partner, are risks to the world's second-largest exporter of palm oil.

Six of seven respondents to another question said risks to their economic growth outlook were skewed more to the downside.

The economy was expected to expand 5.8% this year and 5.0% in 2023 after having likely grown 3.5% last year, poll medians showed.

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