BANK Negara Malaysia (BNM) has decided to maintain the Overnight Policy Rate (OPR) at 1.75%, lifting one major uncertainty that has impact on Malaysia’s financial markets.
The decision was reached at the central bank’s Monetary Policy Committee (MPC) meeting today.
“The MPC considers the stance of monetary policy to be appropriate and accommodative,” said BNM in a statement.
“The cumulative 125 basis points reduction in the OPR this year will continue to provide stimulus to the economy.”
The MPC said it will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth.
Although the global economy continues to recover – led by improvements in manufacturing and export activity – BNM cautioned that recent resurgences in COVID-19 cases have caused some major economies to re-introduce containment measures although generally less restrictive than earlier measures.
“This suggests that the global economic recovery will likely remain uneven in the near-term,” the central bank said.
“Financial conditions have improved although risk aversion remains elevated.”
More broadly BNM said the overall outlook remains subject to downside risks, primarily due to the risk of further resurgence of COVID-19 infections which could lead to weaker business, employment and income conditions.
While the latest indicators point towards significant improvement in economic activity in the third quarter for Malaysia, the introduction of targeted measures to contain COVID-19 in several states could affect the momentum of the recovery in the fourth quarter, according to BNM.
“Nonetheless, growth for the year 2020 is expected to be within the earlier forecasted range,” it noted.
“For 2021, economic activity is projected to improve further.”
The central bank said this will be underpinned by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new facilities.
“Nevertheless, 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,” projected BNM.
“Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the pandemic globally and domestically.”
In line with earlier assessments, the central bank said headline inflation is likely to average negative this year given the substantially lower global oil prices.
For 2021, headline inflation is projected to average higher. The outlook, however, will continue to be significantly affected by global oil and commodity prices.
Underlying inflation is expected to remain subdued in 2021 amid continued spare capacity in the economy.
The next MPC meeting is scheduled for Jan 19 and 20 next year with the monetary policy statement released at 3pm on the second day of the MPC meeting. – Nov 3, 2020
