KUALA LUMPUR: Bank Negara Malaysia’s monetary policy committee maintained the overnight policy rate (OPR) at 1.75%, which was in line with economists’ expectations.
Latest indicators point to continued improvements in economic activity in the first quarter and into April, the central bank said in a statement on Thursday after the meeting of the Monetary Policy Committee (MPC).
“While the recent re-imposition of containment measures in select locations will affect economic activity in the short term, the impact will be less severe as almost all economic sectors are allowed to operate.
The government reimposed the movement control order (MCO) in most districts in Selangor on Thursday while Kuala Lumpur will come under MCO on Friday.
Bank Negara, it is outlook for Malaysia’s growth, pointed out the growth trajectory was projected to improve, driven by the stronger recovery in global demand and increased public and private sector expenditure amid continued support from policy measures.
Growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the electrical and electronics and primary-related sub-sectors, as well as oil and gas facilities.
The progress of the domestic Covid-19 vaccine programme will also lift sentiments and contribute towards recovery in economic activity, it added.
“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.
The OPR was lowered by a total of 125 basis points in the first seven months of 2020 to a record low of 1.75%, where it has remained since.
StarBiz reported economists as saying it was still premature to cut interest rates at this juncture as the current OPR of 1.75%, which is already at a record low, is adequate to support the ongoing economic recovery.
In addition, given the return of inflation as seen in February and March this year, a reduction in OPR may not be favourable in dealing with price pressures in the coming months, the economists said.
According to a Bloomberg survey among economists, the median forecast for the OPR was expected at 1.75%.
On the outlook for inflation, Bank Negara said headline inflation in 2021 is projected to average higher between 2.5% and 4.0%, primarily due to the cost-push factor of higher global oil prices.
In terms of trajectory, it pointed out headline inflation is anticipated to temporarily spike in the second quarter of 2021, due particularly to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020.
However, this will be transitory as headline inflation is projected to moderate thereafter as this base effect dissipates.
Underlying inflation, as measured by core inflation, is expected to remain subdued, averaging between 0.5% and 1.5% for the year, amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments.
“The MPC considers 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, ” it said.
The central bank said it remains committed to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery.
On the global economy, Bank Negara said economic recovery continues to strengthen, particularly in the major economies, supported by improvements in manufacturing and trade activity, although the pace may vary across countries.
It pointed out ongoing roll-out of vaccination programmes and sizeable fiscal stimulus measures in the US as well as policy support in other major economies will further facilitate an improvement in domestic demand.
"However, the recovery trajectory in some economies could be disrupted by a re-tightening of containment measures to curb Covid-19 resurgences.
"Recent financial market volatility has somewhat receded, and financial conditions remain supportive of growth.
“The balance of risks to the growth outlook remains tilted to the downside, due mainly to uncertainty over the path of the pandemic as well as potential risks of heightened financial market volatility, ” it cautioned.