Bank Negara Malaysia (BNM) governor, Tan Sri Nor Shamsiah Mohd Yunus has commented that the central bank will need to assess the economic impact of previous overnight policy rate (OPR) hikes before making any future decisions. These include how much more to raise the OPR moving forward, or how long to hold the OPR at the current level.

“It is important to remember that monetary policy works with a lag and will take some time before we start to see demand pressure easing. The decision to maintain the OPR for now allows us to assess the impact of our past OPR adjustment to inflation and economy. This would give us a better clarity on inflation and economic outlook amid the evolving global economic environment and how we act next,” said Tan Sri Nor Shamsiah.

For context, BNM had implemented four OPR hikes back in May, July, September, and November 2022 to raise the rate back up from a historical low of 1.75% to 2.75%. It then decided to take a pause in increasing the OPR during the first Monetary Policy Committee meeting of 2023.

The governor also went on to explain that Malaysia’s inflation is currently caused by a combination of both supply and demand pressures, instead of just one key factor. While the OPR has limited impact on the cost-push price pressures (when companies increase their prices to cover higher production costs due to various reasons), the rate is still crucial in managing demand pressures.

“We have been seeing demand pressures since the economy reopened, which contributed to the persistence and pervasiveness of domestic inflation. High inflationary pressures are very damaging to the economy and can cause even deeper hardship for the rakyat. It would hurt everyone’s purchasing power, especially for the low-income group, regardless of whether you have a loan or not,” Tan Sri Nor Shamsiah elaborated.

Given this situation, the governor said that BNM will need to continue monitoring the strength and risks posed by Malaysia’s demand pressures, and take into account these data when making its decisions regarding the OPR.

Regardless, Tan Sri Nor Shamsiah reiterated that BNM will adopt a measured and gradual stance in its monetary decisions, as opposed to the more aggressive position taken by other countries. This is to ensure that Malaysia’s monetary policy will remain as accommodative and supportive of the economy as possible.

“I would like to stress especially on social media that we do not set our OPR based on what other central banks decide on their monetary policy. In line with our mandate, we continue to calibrate monetary policy based on ensuring sustainable domestic growth in an environment of price stability,” Tan Sri Nor Shamsiah added, stressing that Malaysia’s OPR must cater to the country’s needs.

(Source: The Edge Markets)

• TAGS:
• Bank Negara Malaysia
• BNM
• Inflation
• Inflation Rate
• Inflationary Pressures
• OPR
• Overnight Policy Rate
• Tan Sri Nor Shamsiah Mohd Yunus