Malaysia’s food inflation “certainly” faces an upside risk from the hot spell that’s seen lasting until August, according to Nishad Majmudar, analyst and assistant vice-president at Moody’s. This would test Bank Negara Malaysia’s (BNM) tolerance level, he said in a media roundtable today.

“We do expect them to be on hold after this latest hike, but perhaps there is room for further hikes if food inflation becomes more of a serious, serious problem,” Majmudar said in response to a question from Bloomberg News.

The country’s central bank earlier this month unexpectedly raised its overnight policy rate (OPR) by a quarter point to keep inflation in check amid robust economic growth. The move saw borrowing costs return to pre-Covid levels, with a majority of analysts in a Bloomberg survey expecting BNM to have reached its terminal rate.

Malaysia has acknowledged that extreme weather could weigh on economic activity, and is on alert for disruptions to food supplies. Still, the government maintained its growth forecast of around 4% to 5% for this year, supported by strong economic fundamentals and Budget 2023 measures, the finance ministry said last week.

To be sure, Malaysia has a track record of managing food and climate-related risks, said Majmudar. The net food importer last year suspended poultry exports and began shipping in eggs to deal with shortages. It also spent hundreds of millions of ringgit on flood management.

“We think the government has been actually quite forward looking in terms of thinking about carbon transition and climate change and climate risks,” said Majmudar.

“While these exposures have increased, there are government policies in place, there are plans, whether it be infrastructure or other measures, to try to adapt to some of these risks,” he said.