KUALA LUMPUR – As anticipated by analysts, Bank Negara Malaysia (BNM) has opted to maintain the overnight policy rate (OPR) at 3%, following the Monetary Policy Committee’s (MPC) decision during today’s meeting.
In a statement, the central bank said the decision aligns with the moderate expansion of the global economic landscape, driven by domestic demand and improvements in trade activity.
It said favourable labour market conditions in certain countries are bolstering consumption, with expectations of growth in regional economies and a cautiously optimistic outlook for China’s modest growth given continued weakness in the property market.
“Global trade is expected to strengthen as the global tech upcycle gains momentum. Global headline and core inflation edged downwards in recent months with prospects of monetary easing in some countries in the second half of the year,”
“Nonetheless, the global monetary policy stance is likely to remain tight in the near term, as inflation remains above average. The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and volatility in global financial markets.”
The central bank said global trade is predicted to strengthen, particularly with the momentum of the global tech upcycle. Despite recent decreases in global headline and core inflation, some countries may implement monetary easing in the latter half of the year.
However, a generally tight global monetary policy is expected due to persistent inflation above average, while the growth outlook remains vulnerable to geopolitical tensions, unexpected inflation spikes, and financial market volatility.
In 2023, the Malaysian economy expanded by 3.7%, and projections for 2024 indicate further improvement, fueled by export recovery and resilient domestic expenditure.
Positive export growth, driven by stronger global trade, is anticipated after a contraction since March 2023.
“Tourist arrivals and spending are poised to rise further. Continued employment and wage growth remain supportive of household spending,” BNM said.
Investment activity would be supported by the ongoing progress of multi-year projects in both the private and public sectors, the implementation of catalytic initiatives under the national master plans, as well as the higher realisation of investments.
Downside risks include weaker-than-expected external demand and larger declines in commodity production, while potential upside risks stem from greater spillover from the tech upcycle, robust tourism activity, and faster project implementation.
In January 2024, headline and core inflation stood at 1.5% and 1.8%, respectively, aligning with expectations. The outlook for 2024 foresees moderate inflation, contingent on domestic policy implementation, global commodity prices, and financial market developments, BNM said.
Addressing the value of the ringgit, BNM emphasised its current undervaluation, considering Malaysia’s economic fundamentals and growth prospects.
It said coordinated efforts by the government are underway to encourage repatriation and conversion of foreign investment income by government-linked companies (GLCs) and government-linked investment companies (GLICs), contributing to increased inflows and supporting a firmer ringgit.
These actions are contributing to greater inflows, lending support to a firmer ringgit. Over the medium term, ongoing structural reforms will provide more enduring support to the ringgit, the central bank said.
It said at the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current inflation and growth prospects assessment.
“The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability.”
The monetary policy committee convenes six times annually to deliberate on the OPR. The rate has remained at 3% since May last year, following a gradual increase from the lowest point of 1.75% in July 2020, during the height of the Covid-19 pandemic.
Analysts had accurately predicted the unchanged OPR of 3% at the beginning of the year, aligning with the goal of sustaining economic growth in the face of an anticipated inflation rate ranging from 3% to 3.5%, compared to the previous year’s inflation rate of 2.5%.
Meanwhile, the ringgit opened higher against the US dollar and other major currencies today, in anticipation of the central bank’s OPR announcement today.
At 9am, the ringgit rebounded to 4.7230/7280 against the greenback compared with Friday’s close of 4.7440/7480.
Late last month, Communications Minister Fahmi Fadzil said increasing the OPR rate to shore up the ringgit is not the best idea, as this may jeopardise the people’s well-being.
Yesterday, BNM governor Datuk Shaik Abdul Rasheed Ghaffour said Malaysia’s economy is projected to grow 4% to 5% this year.
He said support for growth will come from domestic demand and improvements in the external sector, where Malaysia is a dominant player in the global semiconductor industry.
Rasheed also pointed to approved investments of US$70 billion (RM329 billion) last year, of which 57% were foreign direct investments. – March 7, 2024