KUALA LUMPUR: Bank Negara stayed the overnight policy rate (OPR) at 2.75% for the second consecutive meeting after raising the benchmark lending rate by 100 basis points (bps) last year.
The move met market expectations as a Reuters poll of economists showed 16 of 27 economists had projected the central bank would leave the benchmark interest rate unchanged.
However, the central bank is not expected to be done with raising the interest rate as a slight majority of those polled by Reuters, 13 out of the 22 economists, forecast it to raise the rate by 25 bps to 3% by the second quarter of the year.
The central bank had raised the OPR by 1% in back-to-back rate hikes from May 11, 2022 to Nov 3, 2022, in an effort to rein in rising inflationary pressures, but paused at the current level at its January 2023 decision.
In a statement, Bank Negara said at the current OPR level, the stance of monetary policy remains accommodative and supportive of economic growth. However, it would continue to assess the impact of the cumulative OPR adjustments, given the lag effects of monetary policy on the economy.
Moving forward, the central bank said it remains vigilant to cost factors, including those arising from financial market developments that could affect the inflation outlooks.
"Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook.
"The MPC will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth," it added.
According to Bank Negara, the economy is expected to moderate in 2023 amid a slower global economy.
It said growth will be driven by domestic demand while household spending will be underpinned by sustained improvements in employment and income prospects.
Meanwhile, tourist arrivals are expected to continue rising and lift tourism-related activities while multi-year infrastructure projects will support investment activity.
The downside risks however stem mainly from global developments such as weaker-than-expected growth outturns or much tighter and more volatile global financial conditions.
Bank Negara expects the headline and core inflation to moderate over the course of 2023 but will remain elevated amid lingering demand and cost factors.
"The extent of upward pressures to inflation will remain partly contained by existing price controls and fuel subsidies, and the remaining spare capacity in the economy.
"The balance of risk to the inflation outlook is tilted to the upside and continues to be highly subject to any changes to domestic policy on subsidies and price controls, as well as global commodity price developments," it added.
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On the global scene, Bank Negara noted some positive developments with the reopening of China's economy and better-than-expected growth outturns in major economies, supported by resilient domestic demand.
However, it said the global economy continues to be weighed down by elevated cost pressures and higher interest rates.
While headline inflation has moderated slightly in recent months, core inflation remained above historical averages, which leads to expectations that central banks will continue raising interest rates.
"This will continue to pose headwinds to the global growth outlook.
"The growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and a sharp tightening in financial market conditions," said Bank Negara.