KUALA LUMPUR, May 3 – Bank Negara Malaysia today announced that its Monetary Policy Committee (MPC) has decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 3.00 percent, citing domestic demand resilience and expansion in economic activities as factors to retain a monetary policy that is slightly accommodative and supportive of economic growth.
In a statement issued today, the central bank said the ceiling and floor rates of the corridor of the OPR were correspondingly increased to 3.25 percent and 2.75 percent, following a MPC meeting today.
“The global economy continues to be driven by resilient domestic demand supported by strong labour market conditions, and a stronger-than-expected rebound of China’s economy.
“The global economy continues to be weighed down by elevated cost pressures and higher interest rates. Headline inflation continued to moderate, but core inflation has persisted above historical averages. For most central banks, the monetary policy stance is likely to remain tight. The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and a sharp tightening in financial market conditions including from further
stress in the banking sector.”
As for the Malaysian economy, it said latest developments were pointing towards further expansion in economic activity in the first quarter of 2023 after the strong performance in 2022.
“While exports are expected to moderate, growth in 2023 will be driven by domestic demand. Household spending remains resilient, underpinned by better labour market conditions as unemployment continues to decline to pre-pandemic levels. The pickup in tourist arrivals is expected to lift tourism-related activities.
“Further progress of multi-year infrastructure projects will support investment activity. Domestic financial conditions also remain conducive to financial intermediation, with no signs of excessive tightening
affecting consumption and investment activities. Risks to the domestic growth outlook are relatively balanced. Upside risks mainly emanate from domestic factors such as stronger-than-expected tourism activity and implementation of projects including those from the re-tabled Budget 2023, while downside risks stem from weaker-than-expected global growth and more volatile global
financial market conditions.”
The central also expects both headline and core inflation rates to moderate over the course of 2023, averaging between 2.8% – 3.8%. However, 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.
With the domestic growth prospects remaining resilient, the MPC said it will be 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.”
— WE