Bank Negara raises OPR by 25 basis points to 2.50pct

Bank Negara Malaysia (BNM) has increased the Overnight Policy Rate (OPR) by 25 basis points to 2.50 percent at its fifth Monetary Policy Committee (MPC) meeting today.

The central bank said the ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.75 percent and 2.25 percent respectively.

“The global economy continued to expand, albeit at a slower pace, weighed down by rising cost pressures, tighter global financial conditions, and strict containment measures in China.

“However, global growth continues to be supported by improvements in labour market conditions and the full reopening of most economies and international borders,” BNM said in its monetary policy statement today.

It noted that inflationary pressures have remained high due to elevated commodity prices and tight labour markets, despite continued easing in global supply chain conditions.

Consequently, it said central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressure.

In particular, it said aggressive adjustments in the US interest rates have contributed to a strong US dollar environment.

This, the central bank said, has resulted in higher volatility in financial markets affecting other major and emerging market currencies, including the ringgit.

“Going forward, global growth is expected to face challenges from the impact of monetary policy tightening in most economies and pandemic management measures in China.

“The growth outlook is subject to downside risks, including elevated cost pressures, the potential energy crisis in Europe, and sharp tightening in financial market conditions,” BNM said.

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Transition to endemicity

For the Malaysian economy, the transition to endemicity and policy measures have contributed to stronger growth performance in the second quarter of 2022, BNM said.

It shared that indicators point to continued growth, underpinned by support from private sector spending going forward.

“Labour market conditions and income prospects also remained positive, with unemployment and underemployment declining further.

“The reopening of international borders will lift tourism-related sectors. Investment activity and prospects would be supported by the realisation of multiyear projects.

“Nevertheless, external demand is expected to moderate following softening global growth. Despite the increased volatility in the global financial and foreign exchange markets, these developments are not expected to derail Malaysia's growth,” BNM noted.

It said domestic liquidity remained sufficient, with the continued orderly functioning of the financial and foreign exchange markets.

Financial institutions also continue to operate with strong capital and liquidity buffers and these will ensure financial intermediation remains supportive of the economy, it said.

“Going forward, downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts, and worsening supply chain disruptions,” the central bank said.

Headline inflation averaged 2.8pct

Year-to-date, BNM said headline inflation has averaged at 2.8 percent and is projected to peak in the third quarter this year before moderating due to dissipating base effects and in line with the expected easing of global commodity prices.

Underlying inflation, as measured by core inflation, is expected to average closer to the upper end of the 2.0 to 3.0 percent forecast range in 2022, with some signs of demand-driven pressures amid the high-cost environment, it said.

“The extent of upward pressures to inflation will remain partly contained by existing price controls, fuel subsidies, and the prevailing spare capacity in the economy.

“The inflation outlook, however, continues to be subject to domestic policy measures as well as global commodity price developments arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions,” BNM shared.

With positive growth prospects for the Malaysian economy intact, it said the MPC decided to further adjust the degree of monetary accommodation.

At the current OPR level, it said, the current monetary policy continues to remain accommodative and supportive of economic growth.

The central bank said the MPC is not on any preset course and will continue to assess evolving conditions and their implications on the overall outlook for domestic inflation and growth.

“Any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability,” it added.

- Bernama

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