The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has decided to maintain the country’s overnight policy rate (OPR) at 3.00% in its July 2023 meeting today. Accordingly, the ceiling and floor rates of the corridor of the OPR will also be kept at 3.25% and 2.75%, respectively.

BNM said that its decision is attributed to the fact that the Malaysian economy has been expanding at a more moderate pace in recent months, after a strong growth in the first quarter of the year. This is as exports were weighed down by slower external demand.

The central bank also expects that Malaysia’s economic growth for the rest of the year will continue to be driven by domestic demand, with household spending spurred on by the improved labour market conditions. The tourism industry, too, is expected to continue recovering, thereby contributing to the economy.

“At the current OPR level, the monetary policy stance is slightly accommodative and remains supportive of the economy. The MPC continues to see limited risks of future financial imbalances. The MPC remains vigilant to ongoing developments, and will continue to monitor incoming data to inform the assessment on the outlook of domestic inflation and growth,” said the central bank.  

With regard to domestic inflation, BNM noted that Malaysia’s headline inflation has continued to ease, along with core inflation. That said, both remains elevated relative to the long-term average, due to lingering demand and cost factors.

“For the second half of 2023, both headline and core inflation are projected to trend lower, broadly within expectations. Risks to the inflation outlook remain highly subject to the degree of persistence in core inflation, changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments,” BNM further said.

BNM also added that some downside risks that may affect Malaysia’s economy moving forward include weaker-than-expected global growth, especially among major economies – thanks to factors such as persistent global core inflation and higher interest rates. For instance, China’s pace of recovery has slowed in recent months, after its economic reopening, and most central banks are projected to maintain a tight monetary policy stance. An escalation of geopolitical tensions, like the Russia-Ukraine war, will also cause a chain reaction that would impact Malaysia.

Finally, BNM reassured that the MPC will continue to ensure that Malaysia’s monetary policy stance remains conducive to sustainable economic growth amid price stability.

To chart Malaysia’s OPR cycle thus far in 2023, BNM had temporarily paused the rate hike in its January and March meeting earlier this year, after raising the OPR to 2.75% via four consecutive hikes back in 2022. Subsequently, it raised the OPR by 25 basis points (bps) to 3.00% in its May meeting. Many economists are of the opinion that BNM will likely set the OPR at a peak of 3.25% or 3.50% within this year.

(Source: BNM)

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