9th March 2023 - 3 min read
The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has once again decided to maintain the country’s overnight policy rate (OPR) at 2.75% in its March 2023 meeting today. Accordingly, the ceiling and floor rates of the OPR will also be held steady at 3.00% and 2.50%, respectively.
In its statement, BNM explained that it finds the current OPR to still be accommodative and supportive of Malaysia’s economic growth, hence the decision to keep it at 2.75%. Additionally – just as the central bank had said during the previous MPC meeting in January – it still needs more time to assess the impact of the cumulative OPR adjustments that have been made back in 2022, given the lag effects of monetary policies on the economy.
BNM also noted that while Malaysia’s economy enjoyed a strong growth of 8.7% in 2022, its economic expansion is expected to moderate in 2023 amid a slower global economy. As such, Malaysia’s growth will continue to be driven primarily by domestic demand, while household spending will be supported by better employment and income prospects.
The prospects of the tourism industry, too, will likely improve with more tourists arriving, whereas investment activities will be supported by the continued progress of multiyear infrastructure projects. The implementation of projects from the recently re-tabled Budget 2023 may provide a boost to the country’s economy as well.
“Downside risks continue to stem mainly from global developments, including from weaker-than-expected growth outturns or much tighter and more volatile global financial conditions,” BNM noted, adding that the global economy continues to be weighed down by elevated costs pressures and higher interest rates despite some positive developments, such as the reopening of China’s economy and better-than-expected growth for some major economies.
As for inflation, BNM predicts that while both headline and core inflation will gradually decline over the course of 2023, it will continue to be elevated. This is attributed to factors such as lingering demand and cost pressures. “The extent of upward pressures to inflation will remain partly contained by existing price controls and fuel subsidies, and the remaining spare capacity in the economy,” said the central bank.
Finally, BNM reassured that the MPC will continue to monitor Malaysia’s evolving economic conditions and their implications to the domestic inflation and growth outlook. In turn, Malaysia’s monetary policy settings will be calibrated accordingly to balance the risks to domestic inflation and sustainable growth.
Back in 2022, BNM had implemented four consecutive OPR hikes in May, July, September, and November to raise the rate back from an all-time low of 1.75% to 2.75%. It subsequently decided to pause the rate hike in January 2023 to assess the impact of the earlier increases made.
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