MPC meeting results in BNM OPR increase to 2%

KUALA LUMPUR – The conclusion of Bank Negara Malaysia’s (BNM) third Monetary Policy Committee (MPC) of 2022 saw the hike of the Overnight Policy Rate (OPR) to 2%.

The OPR increased by 25 basis points after many months of BNM maintaining the rate at 1.75%.

In its recently released Monetary Policy Statement, the central bank stated that the ceiling and floor rates of the corridor of the OPR is now at 2.25% and 1.75% respectively.

BNM explained that the continuous recovery conditions brought on from the reopening of global economy as well as labour market improvements is a factor that bolsters Malaysia’s recovery.

Despite that, it said that the Russia-Ukraine conflict and stringent lockdown measures in China had some effects on the overall performance.

Additionally, the statement said that pressures brought on by inflation have risen significantly due to rising commodity prices, supply chain disruptions and strong demand conditions especially in the United States.

Due to that, BNM stated that several central banks would speed up their revision of monetary policy settings in hopes to minimise these pressures.

Global growth outlook is expected to be affected by the developments of the Ukraine conflict, COVID-19, worldwide supply chain, commodity price shocks and also financial market volatility.

On the other hand, the central bank reports that their most recent data indicate Malaysia’s growth is on solid footing, backed by rising domestic demand brought on from export growth.

It said that the labour market’s lower unemployment rate also improved the overall performance with higher labour participation and improved income prospects.

“The transition to endemicity on April 1, 2022 would boost economic activity in tandem with the gradual lifting of limitations and reopening of international borders.

“Investment activity and outlook have also increased, supported by the completion of multi-year projects and a strong view for economic development,” it added.

Despite that, BNM stated that there are risks to growth. This includes a weaker-than-expected global growth, escalation of geopolitical conflicts, further deterioration of supply chains and other adverse developments around COVID-19.

MPC’s report also anticipates headline inflation range to be between -3.2% and 2.2% for this year.

“Given the improvement in economic activity with the persistence of cost pressures, underlying inflation, measured by core inflation, would be higher to average at -3.0% and 2.0% for the year.

“However, the upward pressure on prices would be partially controlled by existing price regulations and continued spare economic capacity,” it added.

At the same time, inflation outlook continues to be influenced by global commodity price movements. This is primarily due to the ongoing military conflict in Ukraine and further prolonged supply disruptions, together with domestic policies on prices.

It was during the COVID-19 pandemic that the MPC decided to reduce the OPR by 125 basis points to 1.75%, the lowest recorded in history. The policy was to allow for economic support during the difficult time.

BNM explained that the conditions which warranted these measures no longer exist.

“With domestic economy on a firmer foundation, the MPC decided to reduce such monetary accommodation.

“It will be done in a measured and gradual way to ensure that monetary policy remains accommodating to support sustainable economic growth in an environment of price stability,” BNM continued.

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