Moody’s: OPR decision due to inflation pressures

“Bank Negara noted several central banks are expected to adjust monetary policy settings ‘at a faster pace’, hinting at concerns over capital outflows and the weakening ringgit,” Moody’s Analytics added.

PETALING JAYA: Bank Negara’s surprise decision to increase its overnight policy rate (OPR) by 25 basis points to 2% from 1.75% came on the back of rising inflation pressures, says Moody’s Analytics.

In its “Asia Pacific Economic Preview” for the week of May 16-20, 2022 released yesterday, the agency said that the Russian invasion of Ukraine, together with China’s zero-Covid policy, has caused supply-chain disruptions and an uptick in global commodity prices.

“Bank Negara noted several central banks are expected to adjust monetary policy settings ‘at a faster pace’, hinting at concerns over capital outflows and the weakening ringgit,” Moody’s Analytics added.

It said that given that the country’s borders had fully reopened on April 1, the central bank now expects the economy to strengthen.

Domestic Covid-19 restrictions have also largely been lifted, allowing consumer and investor spending to pick up.

“Inflation remains relatively subdued, and this renders the central bank’s move largely preemptive.

“Higher food and fuel prices pushed the consumer price index to 2.2% year-on-year (y-o-y) in March.

“In comparison, consumer prices in neighbouring Singapore, Thailand and the Philippines rose between 4.5% and 5.5% in April,” Moody’s Analytics said.

Being a net exporter of oil, the agency said that Malaysia could afford to subsidise its domestic prices to ward off price increases due to the high oil price.

“Nonetheless, the country is subjected to rising food prices, which has been exacerbated by the Russian invasion of Ukraine.

“The price of food and non-alcoholic beverages had soared 4% y-o-y in March, on par with the rest of the Asia-Pacific region,” it noted.

Malaysia’s gross domestic product for the first quarter of 2022 came in stronger than expected at 5% compared to its previous quarter’s performance – the fourth quarter of 2021 – which was 3.6% y-o-y.

Industrial production grew 5.1% y-o-y in March, compared with a 4% increase in February.