BNM maintains OPR at 1.75%

KUALA LUMPUR – The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has kept the overnight policy rate (OPR) unchanged at 1.75% on the view that the global economy continues to recover, supported by manufacturing and trade activity.

The central bank said labour market conditions have also improved in many countries, although several countries reintroduced measures to curb ongoing COVID-19 resurgences, causing some moderation in the pace of recovery in domestic activity, especially services.

Inflation remains elevated in a number of countries, driven by both supply and demand factors, it said.

“Going forward, continued progress in vaccination coverage, advancements in vaccine efficacy, and the availability of anti-viral treatments will allow for better management of the pandemic, hence, supporting global growth prospects.

“The global growth outlook will continue to be affected by uncertainties over the emergence of new variants of concern, risks of prolonged global supply disruptions, and risks of heightened financial market volatility amid adjustments in monetary policy in major economies,” it said in a statement on January 20.

The key interest rate has been kept at 1.75 since July 2020, the lowest on record since 2004.

BNM said the latest high-frequency indicators show that local economic activity rebounded in the fourth quarter, in line with the relaxation of containment measures.

It expects the growth for 2021 would be within the projected range of 3.0% and 4.0%.

“Looking ahead, growth is expected to gain further momentum in 2022, driven by the expansion in global demand and higher private sector expenditure amid improvements in the labour market and continued policy support.

“Risks to the growth outlook, however, remain tilted to the downside. Such risks may arise from a weaker-than-expected global growth, worsening supply chain disruptions, and the emergence of severe and vaccine-resistant COVID-19 variants of concern,” the central bank said.

On headline inflation, BNM said the average headline inflation is likely to remain moderate as the base effect from fuel inflation dissipates.

Underlying inflation, as measured by core inflation, is expected to edge upwards as economic activity normalises amid the environment of high input costs, while core inflation would likely be modest, with upside risk contained by the continued slack in the economy and labour market, it said.

The outlook, however, continues to be subject to global commodity price developments amid risks from prolonged supply-related disruptions, it said.

“The MPC considers the current stance of monetary policy to be appropriate and accommodative.

“Fiscal and financial measures will continue to cushion the economic impact on businesses and households and provide support to economic activity,” it said.

BNM added that the stance of monetary policy would continue to be determined by new data and their implications on the overall outlook for inflation and domestic growth.