Bank Negara retains OPR at all-time low of 1.75%

  • Economy
  • Thursday, 08 Jul 2021

However, it noted the reimposition of nation-wide containment measures to curb the resurgence in Covid-19 cases will dampen the growth momentum.

KUALA LUMPUR: Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 1.75% at the Monetary Policy Committee (MPC) meeting on Thursday, which was in line with economists’ expectations.

It said in a statement that for the Malaysian economy, better-than-expected economic activity in the first quarter of 2021 continued into April. These were reflected by latest indicators, particularly on exports, retail spending and labour market conditions, it said.

However, Bank Negara noted the reimposition of nation-wide containment measures to curb the resurgence in Covid-19 cases will dampen the growth momentum.

“The degree of impact to the economy is highly dependent on the stringency and duration of containment measures, ” it said.

StarBiz reported that after a cumulative 125 basis points cut in the OPR last year to fuel economic growth, economists agree that the current interest rate is sufficient to accommodate the economy.

“A cut in interest rates is not likely to help to stimulate the economy due to inflationary pressure amid the pandemic and tighter restrictions. Most parts of the Klang Valley are under a two-week enhanced movement control order, ” StarBiz reported.

There were 8, 868 new Covid-19 infections on Thursday, bringing the cumulative cases to 808, 658 in the country. Selangor had the most infections at 4, 152 and raising the total in the state to 272, 993 cases.

On the impact of the containment measures, Bank Negara pointed out continued allowances for essential economic sectors to operate and various policy support packages would partly mitigate the impact of the restrictions.

It noted the essential sectors were allowed to operate albeit at a reduced capacity while higher adaptability to remote work, automation and digitalisation will partly mitigate the impact of restrictions.

“The various policy support packages will alleviate some of the financial burdens of households and businesses. Favourable external demand conditions will continue to provide a lift to growth.

“Going forward, the gradual relaxation of containment measures, alongside the rapid progress of the domestic vaccination programme and continued strength in external demand will provide support for the growth recovery into 2022, ” it said.

On the inflation rate, it said the headline inflation spiked recently due mainly to the base effect from low fuel prices in the second quarter of last year.

“This spike is transitory and headline inflation is projected to moderate in the near term as this base effect dissipates.

“For 2021 as a whole, headline inflation is projected to average closer to the lower bound of the forecast range.

“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, ” it said, adding that however the outlook was subject to global commodity price developments.

“The MPC considers the stance of monetary policy to be appropriate and accommodative. In addition, fiscal and financial measures will continue to cushion the economic impact on businesses and households and provide support to economic activity.

“Given the uncertainties surrounding the pandemic, the stance of monetary policy 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, ” Bank Negara said.

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