KUALA LUMPUR, 5 May 2020 – The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has decided to reduce the Overnight Policy Rate (OPR) by 50 basis points to 2.00 percent, a level last seen during the 2008-09 global financial crisis.
In a recent statement, BNM said the ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.25 percent and 1.75 percent, respectively.
The central bank said 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.
“Substantial policy stimuli introduced by many economies, coupled with the gradual easing of containment measures globally, would partially mitigate the economic impact of COVID-19. Growth prospects should improve in 2021 with the expected containment of the pandemic,” it said.
BNM noted that domestic economic conditions in Malaysia 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.
The Movement Control Order (MCO), while necessary to contain the spread of the virus, has also constrained production capacity and spending. BNM said, the labour market conditions are also expected to weaken considerably.
“Economic conditions would be particularly challenging in the first half of the year. The fiscal stimulus measures, alongside monetary and financial measures will, however, offer some support to the economy.
“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,” BNM said.
Inflationary pressures are expected to be muted in 2020, with average headline inflation 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,” said BNM.
The central bank noted that Malaysia’s financial sector is sound, with financial institutions operating with strong capital and liquidity buffers. 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 outright purchase of government securities, reverse repos and the reduction in Statutory Reserve Requirement.
The central bank said it is ready to provide liquidity in the interbank market to ensure orderly market conditions, conducive to support financial intermediation activity.
With the decision today, 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.
“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,” BNM said.