Bank Negara Malaysia (BNM) has decided to resume its monetary tightening by increasing the overnight policy rate (OPR) by 25 basis points (bps) following its Monetary Policy Committee (MPC) meeting today. With this, the OPR will be raised from 2.75% to 3.00%, with the ceiling and floor rates of the corridor of the OPR also correspondingly increased to 3.25% and 2.75%, respectively.

In its statement, BNM explained that its decision was attributed to the fact that Malaysia’s economic activity has continued to expand in the first quarter of 2023, after a strong performance in 2022. This is buoyed by factors such as strong domestic demand, better labour market conditions, and further progress of multi-year infrastructure projects. Stronger-than-expected tourism activity is also expected to continue driving Malaysia’s recovery.

“With the domestic growth prospects remaining resilient, the MPC judges that it is timely to further normalise the degree of monetary accommodation. With this decision, the MPC has withdrawn the monetary stimulus intended to address the Covid-19 crisis in promoting economic recovery. In light of the continued strength of the Malaysian economy, the MPC also recognises the need to ensure that the stance of monetary policy is appropriate to prevent the risk of future financial imbalances,” said the central bank.

BNM also noted that while domestic headline inflation has trended lower in recent months on account of moderating cost factors, core inflation will remain at elevated levels amid firm demand conditions. “Existing price controls and fuel subsidies will continue to partly contain the extent of upward pressures to inflation. The balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy, including on subsidies and price controls, financial market developments, as well as global commodity prices,” it further said.

On the topic of global economy, BNM said that most regions continue to be driven by domestic demand and strong labour market conditions, and are also supported by the stronger-than-expected rebound of China’s economy. “Nevertheless, the global economy continues to be weighed down by elevated cost pressures and higher interest rates,” it said, adding that for most central banks, the monetary policy stance is likely to remain tight.

Finally, BNM reassured that the current monetary policy stance is slightly accommodative and remains supportive of the economy. The MPC will also continue to ensure that its policy remains consistent with the outlook of domestic inflation and growth.

BNM had temporarily paused its rate hike cycle in its last two meetings (January and March 2023) after raising it from 1.75% to 2.75% via four consecutive hikes back in 2022, following a surge in inflation. It said that the pause was necessary for it to assess the impact of past cumulative OPR adjustments, given that monetary policy works with a lag. Meanwhile, many economists believe that BNM is likely to raise the OPR to a peak of 3.25% or 3.50% in 2023.

(Source: BNM)

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