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KUALA LUMPUR (September 10): The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) decided to keep the overnight policy rate (OPR) at 1.75%, with the central bank citing continued improvement in the world economy given the containment measures in more economies and strong political support.
In its Monetary Policy Statement, the bank said that the reopening of production facilities led to the resumption of manufacturing and trading activities, although the recovery in the service sector has been slower.
“Financial conditions have improved, although risk aversion remains high. The outlook is still subject to downside risks and uncertainties, mainly due to the risk of a resurgence of the pandemic and weaker labor market conditions,” he said .
Economic activity in Malaysia continues to recover from the April depression and the latest high frequency indicators show that labor market conditions, household spending and business activity have continued to improve.
The economic recovery is also supported by fiscal stimulus packages, as well as monetary and financial measures.
“Looking ahead, the improvement is expected to continue in 2021, supported by the recovery in external demand and the expansion of private sector spending.
“However, the pace of recovery will be uneven across all sectors, with economic activity in some industries remaining below pre-pandemic levels and slower improvement in the labor market,” BNM said.
The outlook is still subject to downside risks, given the uncertainties surrounding the course of the pandemic domestically and globally.
Inflationary pressures are expected to remain subdued in 2020, the bank said, and headline inflation is likely to average negative in 2020 amid lower world oil prices, although it is expected to average more in 2021.
However, the outlook will continue to be affected by world oil and commodity prices.
“The cumulative 125 basis point (bp) reduction in this year’s OPR will continue to provide stimulus to the economy. Given the growth and inflation outlook, the MPC considers that the monetary policy stance is adequate and accommodative.
“The bank remains committed to using its policy levers as appropriate to create the conditions for a sustainable economic recovery,” the central bank said.
BNM has cut the OPR four times in a row since the beginning of the year, starting with the two 25 basis point cuts during the January and March meetings, followed by a 50 basis point cut in May and another 25 basis point cut in July.
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