KUALA LUMPUR, July 6 — Bank Negara Malaysia (BNM) has increased the Overnight Policy Rate (OPR) by 25 basis points to 2.25 per cent during its fourth Monetary Policy Committee (MPC) meeting this year.
The ceiling and floor rates of the corridor of the OPR are correspondingly increased to 2.50 per cent and 2.00 per cent respectively, BNM said in its Monetary Policy Statement today.
“Amid the positive growth prospects for the Malaysian economy, the MPC decided to further adjust the degree of monetary accommodation. This is consistent with the MPC’s view that the unprecedented conditions that necessitated a historically low OPR have continued to recede.
“At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth,” it said.
The MPC would 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 sustainable economic growth in an environment of price stability.
Reopening of global economy supports economic activities
The central bank also said the reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activities.
However, these have been partly offset by the impact of rising cost pressures, the military conflict in Ukraine and strict containment measures in China.
“Inflationary pressures have continued to increase mainly due to elevated commodity prices and strong demand conditions despite some easing in global supply chain conditions,” it said.
Consequently, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures.
Going forward, the pace of global growth is expected to moderate and will continue to be affected by the elevated cost pressures, conflict in Ukraine, global supply chain conditions and financial market volatility.
“For the Malaysian economy, economic activities continued to strengthen in recent months. Exports and retail spending indicators affirm the positive growth momentum, supported by the transition to endemicity.
“In the labour market, the unemployment rate declined further, with higher labour participation and improving income prospects.
“Looking ahead, while external demand is expected to moderate, weighed by headwinds to global growth, economic growth will be supported by firm domestic demand,” BNM said.
Additionally, the reopening of international borders on April 1, 2022, would facilitate the recovery of tourism-related sectors.
Investment activity and prospects continue to be supported by the realisation of multi-year projects, it said, adding that however, downside risks to growth continue to stem from a weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions.
Headline inflation to remain at 2.2 – 3.2 per cent in 2022
The BNM said that year-to-date, the headline inflation has averaged at 2.4 per cent.
While it is projected to remain within the 2.2 per cent to 3.2 per cent forecast range for the year, headline inflation may be higher in some months due mainly to the base effect from electricity prices.
Underlying inflation, as measured by core inflation, is expected to average between 2.0 per cent – 3.0 per cent in 2022 as demand continues to improve amid the high-cost environment.
Nevertheless, the extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and the continued spare capacity in the economy.
The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions as well as domestic policy measures.