KUALA LUMPUR – The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) decided to maintain the overnight policy rate (OPR) at 3.0%.
In a statement, BNM said the global economy continues to expand, driven by domestic demand amid strong labour market conditions.
“Some signs of recovery are emerging in the electrical and electronics (E&E) sector, but global trade remains soft partly due to the shift in spending from goods to services, and ongoing trade restrictions,” it said.
“Global growth remains weighed down by persistently elevated inflation and higher interest rates, with several major economies experiencing slowing growth momentum.
BNM noted that there are early signs of improvement in China’s growth, though its property market remained weak. Global headline inflation edged up partly due to higher commodity prices, while core inflation continued to moderate.
For most central banks, the monetary policy stance is likely to remain tight.
“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,” said the statement.
In the Dewan Rakyat on Tuesday, Prime Minister Anwar Ibrahim said there is currently no need to raise the OPR due to the country’s present economic conditions not warranting such a move.
He pointed out that the decline in the value of the ringgit is not unique, citing similar trends in the yen and renminbi.
Anwar, who also serves as the finance minister, emphasised the importance of de-dollarisation as the US Federal Reserve increases its interest rates.
The Pakatan Harapan chairman argued against raising the OPR in response to external factors, noting that inflation and unemployment have both decreased while investments in the country have risen. Anwar asserted that OPR hikes should only be considered when the national economy is in a state of decline.
Anwar pointed out that in May, BNM had increased the OPR by 25 basis points to 3.0%.
Anwar also highlighted the potential for de-dollarisation, especially in trade with countries like China, Indonesia, and Thailand, where a significant portion of trade transactions involve the ringgit and renminbi.
In early September, BNM maintained the OPR at 3.0% for the third consecutive policy decision, stating that the current monetary policy stance supports economic growth and aligns with the assessment of inflation and growth prospects.
The central bank emphasised its commitment to maintaining a conducive monetary policy stance to support sustainable economic growth and price stability.
Meanwhile, in today’s statement, BNM said that for the Malaysian economy, the advance gross domestic product estimate points to an improvement in economic activity in the third quarter.
It said growth in 2024 will be driven mainly by resilient domestic expenditure, with some support emanating from the expected recovery in electrical and electronics (E&E), adding that continued employment and wage growth remain supportive of household spending. BNM also noted that tourist arrivals and spending are expected to improve further.
The central bank said investment activity would be supported by continued progress of multi-year infrastructure projects, and implementation of catalytic initiatives under the national master plans.
It added that measures under Budget 2024 will also provide additional impetus to economic activity. The growth outlook remains subject to downside risks stemming from weaker-than-expected external demand and larger and protracted declines in commodity production.
BNM said 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.
“Going into 2024, inflation is expected to remain modest. Risks to the inflation outlook remain highly subject to changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments,” BNM said.
“Of note, the government’s intention to review price controls and subsidies in 2024 will affect the outlook for inflation and demand conditions.”
The anticipation of a prolonged period of higher interest rates in the United States, coupled with growing apprehensions about escalating geopolitical conflicts, has played a role in the ongoing strength of the US dollar.
This resilience in the US dollar has had an impact on various major and emerging market currencies, including the Malaysian ringgit. However, it is expected that these developments will not thwart Malaysia’s economic growth prospects.
“Bank Negara Malaysia will continue to manage risks of heightened volatility, including to provide liquidity, to ensure the orderly functioning of the domestic foreign exchange market,” it said.
“Financial institutions continue to operate with strong capital and liquidity buffers, with domestic financial conditions remaining conducive to sustain credit growth.” – November 2, 2023