Bank Negara Malaysia’s Monetary Policy Committee (MPC) has decided to increase the overnight policy rate (OPR) by 25 basis points (bps) to 2.00 per cent.

The central bank said the ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.25 per cent and 1.75 per cent, respectively.

“The sustained reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activity.

“These have partly cushioned the impact of the military conflict in Ukraine and the strict containment measures in China,” Bank Negara said in a statement today.

The central bank said that over the course of the Covid-19 crisis, the OPR was reduced by a cumulative 125bps to a historic low of 1.75 per cent to support the economy.

The unprecedented conditions that necessitated such actions have since abated.

With the domestic growth on a firmer footing, the MPC decided to reduce the degree of monetary accommodation.

This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability.

Bank Negara said inflationary pressures had increased sharply due to a rise in commodity prices, strained supply chains and strong demand conditions, particularly in the US.

Consequently, several central banks are expected to adjust their monetary policy settings faster to reduce inflationary pressures.

Bank Negara noted that the global growth outlook would continue to be affected by the developments surrounding the conflict in Ukraine, Covid-19, global supply chain conditions, commodity price shocks, and financial market volatility.

Meanwhile, Bank Negara said for the Malaysian economy, the latest indicators show that growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth.

The labour market is further lifted by a lower unemployment rate, higher labour participation and better income prospects.

“The transition to endemicity on April 1, 2022, would strengthen economic activity, in line with further easing of restrictions and the reopening of international borders,” it said.

Bank Negara said headline inflation is projected to average between 2.2 per cent and 3.2 per cent in 2022.

“Given the improvement in economic activity amid lingering cost pressures, underlying inflation, as measured by core inflation, is expected to trend higher to average between 2.0 per cent – 3.0 per cent in 2022.

“Nevertheless, upward pressure on prices would be partly contained by existing price controls and the continued spare capacity in the economy,” it said.

Bank Negara added that the inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions and domestic policy measures on administered prices.

Source: NST Online