KUALA LUMPUR, May 5 — Bank Negara Malaysia today lowered its Overnight Policy Rate (OPR) by 50 basis points to 2.00 per cent.
In a statement today, the central bank said that at its meeting today, the Monetary Policy Committee (MPC) of BNM decided to reduce the OPR while the ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.25 per cent and 1.75 per cent, respectively.
“Global economic conditions have weakened significantly. Measures to contain the Covid-19 pandemic have disrupted economic activity across most economies.
“Recent indicators show that the global economy is already contracting, with global growth projected to be negative for the year. Financial conditions have also tightened amid elevated risk aversion and uncertainty,” it said.
This marks the lowest OPR level in 10 years, with the last 2.0 per cent in February 2010.
With the decision today by the central bank, the OPR has been reduced by a total of 100 basis points, complementing other monetary and financial measures by BNM as well as fiscal measures this year.
“Together, these measures will cushion the economic impact on businesses and households and support the improvement in economic activity,” it said.
It added that while substantial policy stimuli have been introduced by many economies, coupled with the gradual easing of containment measures globally, it would partially mitigate the economic impact of Covid-19.
Growth prospects should improve in 2021 with the expected containment of the pandemic.
“For Malaysia, domestic economic conditions have similarly been affected by the pandemic. Widespread containment measures globally, international border closures and the consequent weak external demand environment will exert a larger drag on domestic economic activity,” it said.
BNM added that the movement control order, while necessary to contain the spread of the virus, has also constrained production capacity and spending.
“Labour market conditions are also expected to weaken considerably. Economic conditions would be particularly challenging in the first half of the year,” it said,
While the fiscal stimulus measures, alongside monetary and financial measures, will, however, offer some support to the economy, the central bank said that with more businesses allowed to operate under the conditional movement control order, economic activity is projected to gradually improve.
“The outlook for growth continues to be subject to a high degree of uncertainty, particularly with respect to developments surrounding the pandemic,” it said.
It added that as inflationary pressures are expected to be muted in 2020, average headline inflation is likely to be negative this year, due mainly to projections for substantially lower global oil prices.
“Nevertheless, the outlook remains significantly affected by global oil and commodity prices, as well as evolving demand conditions. Underlying inflation is expected to be subdued given the projections of weaker domestic growth prospects and labour market conditions,” it said.
BNM said with financial institutions operating with strong capital and liquidity buffers, the financial sector remains sound.
“Liquidity remains ample, augmented by liquidity injections by BNM. Since March 2020, BNM has provided additional liquidity of approximately RM42 billion into the domestic financial markets, via various tools including the outright purchase of government securities, reverse repos, and the reduction in Statutory Reserve Requirement.
“BNM stands ready to provide liquidity in the interbank market to ensure orderly market conditions, conducive to supporting financial intermediation activity,” it said.
It said that the MPC will continue to monitor the outlook for domestic growth and inflation.
“The bank will utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery,” it said.
— Bernama
