KUALA LUMPUR, 3 November 2022 — Bank Negara Malaysia (BNM) has raised the overnight policy rate (OPR) by 25 basis points (bps) to 2.75 per cent, the fourth consecutive hike since May this year as its monetary policy committee (MPC) decided to further adjust the degree of monetary accommodation.
The central bank said the ceiling and floor rates of the corridor of the OPR are correspondingly increased to 3.00 per cent and 2.50 per cent, respectively.
“Against the backdrop of continued positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation,” BNM said in a statement today.
The central bank said the adjustment would also pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of monetary policy settings that balances the risks to domestic inflation and sustainable growth.
“At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. The MPC is not on any pre-set course, which means that monetary policy decisions will continue to depend on evolving conditions and their implications on the overall outlook to domestic inflation and growth,” BNM said.
According to the central bank, any adjustments to the monetary policy settings going forward would continue to 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.
The meeting also approved the schedule of MPC meetings for 2023. In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year.
BNM said latest indicators show that economic activity strengthened further in the third quarter, driven primarily by robust domestic demand.
“Going forward, despite the challenging global environment, domestic demand will remain the key driver of growth,” it said.
The central bank said household spending will continue to be underpinned by improvements in labour market conditions and income prospects and tourist arrivals have increased following the reopening of international borders and will further lift tourism-related sectors.
BNM said investment activity and prospects will be supported by the realisation of multi-year projects. Nevertheless, external demand is expected to moderate following softening global growth, it said.
“Despite bouts of heightened volatility in the global financial and foreign exchange markets, these developments are not expected to derail Malaysia’s growth.
Domestic liquidity remains sufficient, with continued orderly functioning of the financial and foreign exchange markets,” the central bank said.
BNM said financial institutions also continue to operate with strong capital and liquidity buffers and these will ensure financial intermediation remains supportive of the economy.
Downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and worsening supply chain disruptions, it said.
“In line with earlier assessments, headline inflation is likely to have peaked in the third quarter 2022 and is expected to moderate thereafter, albeit remaining elevated.
Underlying inflation, as measured by core inflation, is projected to average closer to the upper end of the 2.0% – 3.0% forecast range in 2022, having averaged 2.7% year-to-date, given some demand-driven price pressures amid the high-cost environment,” it said.
Moving into 2023, BNM said that headline and core inflation are expected to remain elevated amid both demand and cost pressures, as well as any changes to domestic policy measures.
The central bank said the extent of upward pressures to inflation will remain partly contained by existing price controls, subsidies, and the remaining spare capacity in the economy.
“The balance of risk to the inflation outlook in 2023 is tilted to the upside and continues to be subject to domestic policy measures on subsidies, as well as global commodity price developments arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions,” it said.
The central also said that global economy continues to be weighed down by rising cost pressures, tighter global financial conditions, and strict containment measures in China.
“These factors more than offset the support from positive labour market conditions, and the full reopening of most economies and international borders.
Inflationary pressures were more persistent than expected due to strong demand, tight labour markets, and elevated commodity prices, despite improvements in global supply chain conditions,” it said.
The growth outlook remains subject to downside risks, including escalation of geopolitical tensions, worsening of domestic headwinds in China and potential energy rationing in Europe, BNM added.
— Akses Malaysia
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