BANK Negara Malaysia (BNM) has maintained its overnight policy rate (OPR) at 3% following the conclusion of its two-day Monetary Policy Committee (MPC) meeting, a decision widely anticipated by economists.
In a statement, the central bank pointed out that the current OPR level supports the economy and aligns with assessments of inflation and growth prospects.
“The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability,” the statement reads.
BNM reported increased economic activity in Malaysia during the first quarter of 2024, driven by robust domestic expenditure and improved exports. It expects export recovery to strengthen, supported by global tech trends and strong non-electrical and electronics exports.
Moreover, rising tourist arrivals and spending coupled with sustained employment and wage growth, are anticipated to bolster household expenditure.
Investment activity is predicted to receive a boost from ongoing multi-year projects in both private and public sectors, along with initiatives outlined in national master plans and increased approved investments.
Despite positive indicators, BNM highlighted downside risks including weaker external demand and potential declines in commodity production.
Inflation remained moderate in the first quarter of 2024, with headline and core inflation averaging 1.7% and 1.8% respectively. BNM forecasts continued moderate inflation for the year, contingent upon domestic policy implementations and global commodity prices.
“Looking forward, inflation in 2024 is expected to remain moderate, broadly reflecting stable demand conditions and contained cost pressures. The outlook for the rest of the year is dependent on the implementation of domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.”
After considering the potential impact of subsidy rationalisation, it is projected that headline and core inflation will average between 2% to 3.5% and 2% to 3% respectively for the year.
BNM last raised the OPR from 2.75% to 3% in May 2023. This adjustment aimed to normalise monetary accommodation and address persistent inflation. The central bank has maintained the benchmark rate unchanged since then.
In response to the COVID-19 pandemic aftermath, BNM reduced the OPR to its lowest level ever at 1.75% in July 2020. Subsequently, the central bank shifted course and gradually increased the OPR by a total of 125 basis points between May 2022 and May 2023.
Furthermore, the MPC’s decision aligns with expectations, with economists foreseeing no immediate rate changes. Both Reuters and Bloomberg polls unanimously predicted no adjustment in the OPR, reflecting confidence in current economic conditions and monetary policy stability.
Main photo credit: Borneo Post Online
