Bank Negara Malaysia (BNM) has maintained the overnight policy rate (OPR) at 3% despite the ringgit plunging to a 25-year low against the US dollar.
The decision was announced today following the central bank’s two-day monetary policy committee (MPC) meeting.
In a press statement, BNM said that maintaining the OPR is vital to support domestic economic growth amid the elevated interest rate environment globally.
“At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects,” it said.
“The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.”
The OPR decision came as no surprise, aligning with the predictions from surveys by Reuters and Bloomberg.
BNM has raised the key lending rate five times since May 2022. At 3%, the OPR has returned to its pre-Covid-19 level in 2019.
Hours before today’s OPR decision, the US Federal Reserve (Fed) also decided to hold its federal funds rate target steady at 5.25%-5.5%, the highest level in more than 22 years.
Steady growth outlook
With global trade still in a slump, Malaysia’s economic growth in the near- and mid-term is projected to be largely driven by domestic demand.
“The global economy continues to expand, driven by domestic demand amid strong labour market conditions,” BNM said.
“Some signs of recovery are emerging in the electrical and electronics sector, but global trade remains soft partly due to the shift in spending from goods to services, and ongoing trade restrictions.”
Malaysia’s exports have been on a negative trend for seven consecutive months as of September, weighed down largely by China’s economic slowdown.
“The growth outlook remains subject to downside risks, mainly from higher-than-anticipated inflation outturns, an escalation of geopolitical tensions, and a sharp tightening in financial market conditions,” the central bank cautioned.
The World Bank projected Malaysia’s gross domestic product to grow by 3.9% for 2023 in light of the softening external demand.
Meanwhile, BNM said domestic inflation has moderated entering the fourth quarter of 2023.
“As expected, both headline and core inflation have moderated, mainly due to easing cost pressures. In the third quarter, headline and core inflation averaged at 2.0% and 2.5%, respectively,” it said.
“Going into 2024, inflation is expected to remain modest.”
However, it said the projection may be influenced by changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.
“Of note, the government’s intention to review price controls and subsidies in 2024 will affect the outlook for inflation and demand conditions,” it said.
Source: FMT Online
