THE Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) announced its decision to maintain the overnight policy rate (OPR) at a standstill of 1.75%.
This is in light of the continued improvement in the global economy, the easing of containment measures among other economies as well as strong policy support.
In its monetary policy statement, the central bank said that the reopening of production facilities caused manufacturing and trade activities to resume, despite a slower recovery in the services sector.
“Financial conditions have improved, although risk aversion remains elevated,” it said in a Sept 10 note. “The outlook is still subject to downside risks and uncertainties, primarily due to the risk of a resurgence of the pandemic and weaker labour market conditions.”
BNM also said that the improvement in Malaysia’s economic recovery is expected to continue until next year, supported by the recovery in external demand and expansion in private sector expenditure.
“However, the pace of recovery will be uneven across sectors, with economic activity in some industries remaining below pre-pandemic levels, and a slower improvement in the labour market,” BNM said.
Despite that, BNM noted that the outlook is still subject to downside risks due to uncertainties related to the pandemic, domestically and globally.
Apart from that, inflationary pressures are expected to remain muted in 2020, while headline inflation is likely to average negative in 2020 amid lower global oil prices. However, it is expected to average higher in 2021.
Previously, BNM’s MPC reduced the OPR by 25 basis points to the current 1.75% earlier in July, which was mainly due to the impact of the Covid-19 pandemic on the global economy.
“For Malaysia, economic activity contracted sharply in the second quarter of the year, due to measures introduced to contain the pandemic globally and domestically. Following the gradual and progressive re-opening of the economy since early May, economic activities have begun to recover from the trough in the second quarter,” it said in its monetary policy statement on July 7, 2020.
“Average headline inflation is likely to be negative this year, primarily reflecting the substantially lower global oil prices. The risks of a broad-based and persistent decline in prices are assessed to be limited as economic activity resumes and demand conditions improve,” it added.
“Nevertheless, the outlook remains significantly affected by global oil and commodity prices. Underlying inflation is expected to be subdued and within expectations.” – Sept 11, 2020
