The central bank of Malaysia, Bank Negara Malaysia surprised markets by leaving its key overnight policy rate steady at 2.75% in the first meeting of 2023 on Thursday. Markets had forecast a 25bps increase. Bank Negara said it wants to assess the impact of the previous four rate hikes. Policymakers noted that the current policy stance remains accommodative and supportive of economic growth and further normalization would depend on the evolving conditions and their implications to the domestic inflation and growth outlook.
Malaysia’s economy has recovered strongly from a pandemic-induced slump, with BNM expecting growth in 2022 to surpass its 6.5%-7% expansion forecast and to moderate in 2023. Inflation is also expected to slow this year.
NM has increased rates by a total of 100 basis points since last May from a historic low of 1.75%, as it looked to rein in inflation amid robust growth.
“Today’s decision allows the monetary policy committee to assess the impact of the cumulative past overnight policy rate (OPR) adjustments, given the lag effects of monetary policy on the economy,” Bank Negara Malaysia said in a statement.
“Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook,” it said.
The main Kuala Lumpur stock index Bursa Malaysia rebounded from yesterday’s losses to end slightly higher, supported by positive local sentiment following Bank Negara Malaysia’s (BNM) decision to maintain the overnight policy rate (OPR), dealers said. At 5pm, the benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) edged up 0.72 point, or 0.04%, to 1,496.22 from yesterday’s closing of 1,495.50.
Among the heavyweights, Maybank slipped 1 sen to RM8.80, CIMB fell 3 sen to RM5.69, Public Bank was flat at RM4.29, while Petronas Chemicals rose 4 sen to RM8.50 and IHH Healthcare advanced 3 sen to RM5.99.
Monetary Policy Statement Thursday, 19 January 2023
At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 2.75 percent.
The global economy continues to be weighed down by elevated cost pressures, higher interest rates, and COVID-19-related disruptions in China. These factors more than offset the support from positive labour market conditions, and the full reopening of economies and international borders. Headline inflation moderated slightly from high levels in recent months. However, core inflation remains above historical averages. Central banks are expected to continue raising interest rates, albeit at a slower pace, to manage inflationary pressures. This will continue to pose headwinds to the global growth outlook. On the other hand, growth in China is expected to improve once the current COVID-19 wave subsides. The growth outlook remains subject to downside risks, including an escalation of geopolitical tensions, weaker-than-expected growth outturns in major economies, and a sharp tightening in financial market conditions.
For Malaysia, the latest data indicated continued economic expansion in the final quarter of last year on account of resilient domestic demand. As a result, growth for 2022 is expected to exceed the earlier projected range of 6.5% – 7.0%. Coming off a strong performance in 2022, growth in 2023 is expected to moderate amid a slower global economy. Growth will remain supported by domestic demand. Household spending will be underpinned by sustained improvements in employment and income prospects. Tourist arrivals have continued to rise, further lifting the tourism-related sectors. The realisation of multi-year infrastructure projects will support investment activity. Downside risks to the domestic economy continue to stem from a weaker-than-expected global growth, higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, further escalation of geopolitical conflicts, and re-emergence of significant supply chain disruptions.
Headline inflation has averaged 3.4% for the period January-November 2022. As projected, headline inflation peaked in 3Q 2022, while underlying inflation, as measured by core inflation, has averaged 2.9% up to November 2022. Over the course of 2023, headline and core inflation are expected to moderate but remain at elevated levels amid lingering demand and cost pressures. Existing price controls and fuel subsidies, and the remaining spare capacity in the economy, will continue to partly contain the extent of upward pressures to inflation. The balance of risk to the inflation outlook is tilted to the upside and remains highly subject to any changes to domestic policy on subsidies and price controls, as well as global commodity price developments.
Today’s decision allows the MPC to assess the impact of the cumulative past OPR adjustments, given the lag effects of monetary policy on the economy. At the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook. The MPC will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth.
PM Anwar Ibrahim
PM Anwar Ibrahim has stated that he wants to reduce living costs while strengthening the country’s small businesses. The ringgit is on track for a third consecutive weekly gain.
PM Anwar was deputy prime minister and finance minister at the time of the Asian financial crisis in 1997 and 1998 after Thailand unpegged the baht from the United States dollar. Anwar won praise for his handling of the crisis. However, he fell out with then-Prime Minister Mahathir Mohamad who had him arrested and later jailed over alleged sodomy and corruption.
Source: Bank Negara Malaysia
From The TradersCommunity Research Desk