KUALA LUMPUR: Bank Negara has maintained its overnight policy rate (OPR) at 1.75%, in line with the consensus expectation of economists surveyed in a Bloomberg poll.
The interest rate has stayed at an all-time low of 1.75% since July 7, 2020, after it was cut from 2% to provide additional policy stimulus in light of the Covid-19 pandemic.
In a statement, Bank Negara said its monetary policy committee (MPC) considers the current stance to be appropriate and accommodative.
“Fiscal and financial measures will continue to provide support to economic activity.
“Amid the prevailing uncertainties, the stance of monetary policy will continue to be determined by new data and their implications on the overall outlook for domestic inflation and growth,” it said.
Speaking to Bloomberg, Winson Phoon, head of fixed-income research at Maybank Securities Pte in Singapore, said the overall language of the MPC statement sounded neutral.
“Malaysia ranks as among the few net commodity exporters in the region. That will leave it less vulnerable than others to US Federal Reserve fund hikes,” OCBC Bank economist Wellian Wiranto said in a note to clients yesterday.
“It shows no sign of Bank Negara intending to start the rate normalisation process anytime soon,” he said.
The central bank added that headline inflation in 2022 is projected to remain moderate as the base effect from fuel inflation continues to dissipate.
Underlying inflation as measured by core inflation, it said, is expected to normalise to around its long-term average as economic activity continues to pick up amid the environment of high input costs.
“Nevertheless, core inflation is expected to be modest, with the upside risk partly contained by the continued slack in the economy and labour market.
“The inflation outlook continues to be subject to global commodity price developments amid risks from prolonged supply-related disruptions,” it said.
Bank Negara noted that the overall recovery trajectory in the global economy remains on track with elevated inflation in many economies due to both demand and supply factors.
Further, the transition of more countries to endemic management of Covid-19 will support global growth prospects.
However, Bank Negara said risks to the growth outlook remain tilted to the downside due to external and domestic actors.
These include weaker-than-expected global growth, ongoing geopolitical conflicts, worsening supply chain disruptions and developments surrounding Covid-19.
“The unfolding developments surrounding the military conflict in Ukraine, however, have emerged as a key risk to global growth and trade prospects, commodity prices and financial market conditions.
“The global growth outlook will also continue to be affected by developments surrounding Covid-19, risks of prolonged global supply disruptions, and heightened financial market volatility amid adjustments in monetary policy in major economies,” said the central bank.
OCBC Bank was of the opinion view that Bank Negara could afford to have more space in hewing close to its historic-low policy rate for longer than its peers.
“For one, its current account surplus status is likely to be bolstered further by the recent ballistic move in commodity prices.
“Malaysia ranks as among the few net commodity exporters in the region. That will leave it less vulnerable than others to US Federal Reserve fund hikes,” OCBC Bank economist Wellian Wiranto said in a note to clients yesterday.
“Overall, we see a central bank that will indeed be hiking rate, but only in the third quarter of this year.
“Even then, it is likely to hike by a tame 25-basis-point hike only – more of a concrete signal that it is paying serious attention to the potential for inflation rather than a reaction to any actual considerable price pressure,” he added.
According to Malaysian Rating Corp Bhd (MARC), the country’s economy did not appear to be ready for monetary normalisation amid the absence of any signs of solid demand-side recovery.
“Real gross domestic product growth in the fourth quarter of 2021 came in at 3.6% year-on-year (Q3’21: 4.5% contraction), primarily driven by the easing of the supply side.
“The rebound could have been higher but was mired by sluggish demand as well as low public and private sector investments,” it noted.
MARC said a higher interest rate would only be possible with a drastic change in the external environment or a speedier pace of pass-through amid rising input costs.
“Abrupt changes in the monetary policy are unlikely, and the monetary settings will remain sufficiently accommodative for some time.
“Otherwise, based on available data, we maintain our view that Bank Negara’s lift-off would only occur during the second half of 2022, and the quantum of rate increases would be gradual,” it said.
According to Malaysian Rating Corp Bhd (MARC), the country’s economy did not appear to be ready for monetary normalisation amid the absence of any signs of solid demand-side recovery.