19th January 2023 - 2 min read
The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has announced it will hold the country’s overnight policy rate (OPR) at 2.75% for now. This came after four consecutive hikes in the rate since May 2022.
In a statement, BNM explained that it decided to maintain the OPR in its first MPC meeting of 2023 because the current rate is suitably accommodative and supportive of Malaysia’s economic growth at present. Additionally, the pause will allow the MPC time to assess the impact of the previous adjustments to the rate, given the lag effects of monetary policy on the economy.
The central bank also highlighted that although Malaysian economy has shown great recovery in 2022, growth in 2023 is expected to moderate amid a slower global economy and will be supported primarily by domestic demand. It foresees as well that household spending will be sustained chiefly by improvements in employment and income prospects.
Meanwhile, the recovery of the tourism industry – with an increasing number of tourist arrivals – will boost tourism-related sectors moving forward. The realisation of multi-year infrastructure projects, too, will support investment activities.
“Downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and re-emergence of significant supply chain disruptions,” BNM further said.
As for inflation, BNM said that it has peaked in the third quarter of 2022, but is expected to remain escalated all throughout 2023. “Over the course of 2023, headline and core inflation are expected to moderate but remain at elevated levels amid lingering demand and cost pressures. Existing price controls and fuel subsidies, and the remaining spare capacity in the economy, will continue to partly contain the extent of upward pressures to inflation,” the central bank shared.
Finally, BNM said that further adjustments of its monetary policy will be informed by the evolving conditions and their implications to the domestic inflation and growth outlook. “The MPC will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth,” it said.
Prior to this, BNM had implemented four consecutive OPR hikes in May, July, September, and November 2022 to raise the rate back from a historical low of 1.75%.
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