BANK Negara Malaysia’s (BNM) Monetary Policy Committee at its meeting today has decided to maintain the overnight policy rate (OPR) at the current rate of 1.75%.
Economists and stock market analysts have expected the interest rate to be retained in view of the roll-out of the RM15 bil Malaysian Economic and Rakyat Protection Assistance Package (PERMAI) on Monday (Jan 18).
Prior to the unveiling of PERMAI, however, the back-to-back re-imposition of the movement control order (MCO 2.0) and declaration of a state of emergency (till Aug 1) last week had prompted market observers to expect a slash of the OPR by a further 25 basis points (bps) to 1.50%.
“The expedited roll-out of mass vaccination programmes together with ongoing policy support are expected to lift global growth prospects going forward,” BNM pointed out in its monetary policy statement. “Financial conditions also remain supportive.”
Nevertheless, the central bank noted that the overall outlook remains subject to downside risks, primarily if there is further resurgence of COVID-19 infections and delays in mass inoculation against COVID-19.
For Malaysia, the resurgence in COVID-19 cases and the introduction of targeted containment measures has affected the recovery momentum in the fourth quarter of 2020, according to BNM.
“As a result, growth for 2020 is expected to be near the lower end of the earlier forecasted range,” it projected.
“For 2021, while near-term growth will be affected by the re-introduction of stricter containment measures, the impact will be less severe than that experienced in 2020.”
On the bright side, BNM expects growth trajectory to improve from the second quarter onwards.
The improvement will be driven 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 manufacturing and mining facilities.
With regard to inflation, the central bank expects headline inflation to average higher than 2020, primarily due to higher global oil prices.
“Underlying inflation is expected to remain subdued amid continued spare capacity in the economy,” projected BNM. “The outlook, however, is subject to global oil and commodity price developments.” – Jan 20, 2021
