In its final meeting for 2022, the Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has agreed to increase the overnight policy rate (OPR) by yet another 25 basis points (bps). With this, Malaysia’s OPR is now up at 2.75%, with the ceiling and floor rates of the corridor of the OPR correspondingly increased to 3% and 2.50% respectively.

BNM explained that its latest decision is driven by latest indicators that showed a further strengthening of Malaysia’s economic activity in the third quarter, driven primarily by robust domestic demand. More importantly, domestic demand will continue to propel Malaysia’s growth going forward, despite the challenging global environment.

On top of that, the improving labour market and income prospects will also spur household spendings, whereas tourist arrivals – which increased following the reopening of international borders – will further lift tourism-related sectors. Not to forget, investment activities and prospects will be supported by the realisation of multi-year projects as well.

“The adjustment (of the OPR) would also pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of monetary policy settings that balances the risk to domestic inflation and sustainable growth,” BNM further elaborated in its statement.

The central bank also highlighted that the global economy may continue to face headwinds, including further monetary policy tightening by central banks in major economies, and escalation of geopolitical tensions. These will also likely be exacerbated by the worsening of domestic headwinds in China and potential energy rationing in Europe.

However, these developments – despite posing some levels of downside risk to Malaysia’s economy – are not expected to derail the country’s growth. This is as domestic liquidity remains sufficient, with the financial and foreign exchange markets continuing to function as usual. Financial institutions also continue to operate with strong capital and liquidity buffers. “These will ensure financial intermediation remains supportive of the economy,” said BNM.

Finally, BNM emphasised that the MPC is not following any pre-set courses in its decisions. Instead, it will continue to make its policy decisions by monitoring the evolving market conditions and their implications on the overall outlook to domestic inflation and growth.

“Any adjustments to the monetary policy settings going forward will continue to be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability,” the central bank said.

Following this latest update, Malaysia’s OPR has seen a total of four consecutive hikes in 2022, starting with a 25bps increase in May 2022 that brought it up from an all-time low of 1.75% to 2.00%. This is then followed by another three in July, September, and finally, today (25bps increase each). The MPC is expected to reconvene in January 2023 for its next meeting.

(Source: Bank Negara Malaysia)

• TAGS:
• Bank Negara Malaysia
• BNM
• Monetary Policy Committee
• MPC
• OPR
• Overnight Policy Rate