Bank Negara maintains OPR at 1.75%, growth to improve from 2Q


  • Economy
  • Thursday, 04 Mar 2021

Bank Negara said looking ahead, growth was projected to improve from 2Q onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures.

KUALA LUMPUR: Bank Negara Malaysia maintained the overnight policy rate (OPR) of 1.75% at its monetary policy committee (MPC) meeting on Thursday as latest indicators point to improvements in external demand and continued consumer spending.

In its statement on Thursday, Bank Negara said while the re-imposition of containment measures would affect growth in the first quarter this year, the impact is expected to be less severe than that experienced in the second quarter of 2020.

Looking ahead, it said growth was projected to improve from 2Q onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures.

“Growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the electrical and electronic (E&E) and primary-related sub-sectors, as well as oil and gas facilities, ” it said.

This was the second time this year it had retained the OPR at 1.75% -- which was in line with most economists’ expectations.

Last year, it had cut the OPR by a total of 125bps to boost a slowing economy and mitigate the impact of the Covid-19 fallout which pushed the economy into a recession.

Meanwhile, Bank Negara was also positive on the roll-out of the domestic Covid-19 vaccine programme, which it said will also lift sentiments and economic activity.

“The growth outlook, however, remains subject to downside risks, stemming mainly from ongoing uncertainties in developments related to the pandemic, and potential challenges that might affect the roll-out of vaccines both globally and domestically, ” it said.

As for headline inflation in 2021, Bank Negara projected it average higher, primarily due to higher global oil prices.

“In terms of trajectory, headline inflation is anticipated to temporarily spike in 2Q this year due to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, before moderating thereafter.

“Underlying inflation is expected to remain subdued amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments, ” it said.

On the monetary policy, the MPC considered the stance of monetary policy to be appropriate and accommodative.

“Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will continue to be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth.

“The Bank remains committed to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery, ” it said.

StarBiz reported on Thursday the decision to maintain the OPR was in line with most economists as they expected the economic outlook to improve following further easing of movement restrictions, amid the declining number of new Covid-19 cases and the recently launched vaccination programme.

Overall, a Reuters poll of 15 economists showed 11 of them expecting Bank Negara to leave the OPR unchanged at 1.75%, while only four are forecasting a 25-bps cut today to a new record low of 1.50%.

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