The monetary policy committee (MPC) of Bank Negara Malaysia announced today that it has raised the overnight policy rate (OPR) by 25 basis points, raising it to 2.25%.

This came amid rising food and energy prices.

“The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.5% and 2%, respectively,” it said in a statement.

In May, the central bank raised the OPR to 2% from 1.75%, reportedly the lowest on record, following a 25 bps cut in July 2020, citing the severity of the global economic slowdown as a result of the pandemic and the contraction of Malaysia’s economic activity.

In a statement issued after the MPC meeting today, BNM noted that the reopening of the global economy and the improvement in labour market conditions continued to support the recovery of economic activity.

“However, these have been partly offset by the impact from rising cost pressures, the military conflict in Ukraine and strict containment measures in China,” it said.

The central bank noted that inflationary pressures have continued to increase mainly due to elevated commodity prices and strong demand conditions, despite some easing in global supply chain conditions.

Consequently, it expects central banks to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures.

“Going forward, the pace of global growth is expected to moderate, and will continue to be affected by the elevated cost,” BNM added.

BNM noted that in Malaysia, economic activity has strengthened in recent months as reflected in the growth momentum in exports and retail spending as the nation makes the transition into endemicity.

It said the unemployment rate also declined with higher labour participation and improving income prospects.

“Looking ahead, while external demand is expected to moderate, weighed down by headwinds to global growth, economic growth will be supported by firm domestic demand,” it added.

Year-to-date, inflation averaged 2.4% and it is project to be within the 2.2% to 3.2% range for the year but the headline inflation may be higher in some months due mainly to the base effect from electricity prices.

“Nevertheless, the extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and the continued spare capacity in the economy,” it explained.

Moving forward, the committee said, the inflation outlook would hinge on global commodity price developments, mainly due to the conflict in Ukraine and prolonged supply related disruptions, as well as domestic policy measures.

“On the back of the positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation,” the statement said.

BNM also pointed out that the reopening of international borders on April 1, 2022 would facilitate the recovery of the tourism sector while investment activities and prospects would continue with the realisation of multi-year projects.

It cited a weaker-than-expected global growth, further escalation of geopolitical conflicts, and worsening supply chain disruptions as key downside risks to growth.

It said that at the current OPR level, the stance of the monetary policy would remain accommodative and supportive of economic growth.

Source: FreeMalaysiaToday.com