Bank Negara said inflation in 2024 is expected to remain moderate.
PETALING JAYA: Bank Negara kept the overnight policy rate (OPR) steady at 3% after its monetary policy committee (MPC) meeting, a move widely expected by economists.
OCBC senior Asean economist Lavanya Venkateswaran said she expects Bank Negara to keep its policy rate unchanged at 3% this year.
Bank Negara remains comfortable with current monetary policy settings, as growth is expected to improve with inflationary pressures manageable.
“Bank Negara noted that it will continue to ‘manage risks arising from heightened financial market volatility’ with regard to the currency. As such, we continue to expect the central bank to keep its policy rate unchanged at 3% in 2024,” she said in a report yesterday.
Meanwhile, CIMB senior economist Lim Yee Ping and research head Michelle Chia said the decision to maintain the OPR at 3% was widely expected, as the central bank awaits details on fuel subsidy rationalisation to assess if its headline and core inflation forecasts of 2% to 3.5% and 2% to 3% respectively remain intact.
“We reiterate our end-2024 OPR forecast at 3%,” they said in a report yesterday.
According to a Reuters poll of economists, Bank Negara will leave its key interest rate at 3% for the sixth consecutive meeting and hold rates steady until at least 2026.
Bank Negara said the current OPR level continues to support the economy and is consistent with the current assessment of the inflation and growth prospects.
“The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability,” it said in a statement.
The central bank said the global economy is growing with strong labour markets in certain nations and ongoing global trade recovery.
“Looking ahead, global growth is expected to be sustained, as headwinds from tight monetary policy and reduced fiscal support will be cushioned by positive labour market conditions and moderating inflation.
“Global trade is expected to strengthen further as the global tech upcycle gains momentum,” it said.
Although global headline and core inflation have been decreasing lately, Bank Negara said the rate of disinflation has slowed in some advanced economies. This raises the likelihood of interest rates staying elevated for an extended period, especially in the US.
It noted that the growth outlook remains subject to downside risks, mainly from further escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and volatility in global financial markets.
For the Malaysian economy, Bank Negara said the latest indicators point towards higher economic activity in the first quarter of 2024, driven by resilient domestic expenditure and a positive turnaround in exports.
“Going forward, the recovery in exports is expected to gather momentum supported by the global tech upcycle and continued strength in non-electrical and electronics goods. Tourist arrivals and spending are also poised to rise further. Continued employment and wage growth remain supportive of household spending.
“Investment activity would be supported by the ongoing progress of multi-year projects in both the private and public sectors, the implementation of catalytic initiatives under the national master plans, as well as the higher realisation of approved investments,” Bank Negara said.
It added that the growth outlook is subject to downside risks from weaker-than-expected external demand, and larger declines in commodity production.
Meanwhile, upside risks to growth mainly emanate from greater spillover from the tech upcycle, more robust tourism activity, and faster implementation of existing and new projects.
Headline and core inflation averaged 1.7% and 1.8% in the first quarter of 2024 respectively.
Looking forward, Bank Negara said inflation in 2024 is expected to remain moderate, broadly reflecting stable demand conditions and contained cost pressures
It said the outlook for the rest of the year is dependent on the implementation of domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.
“After incorporating the potential impact of subsidy rationalisation, headline and core inflation are projected to average between 2.0% - 3.5% and 2.0% - 3.0% for the year respectively,” Bank Negara said.
The central bank emphasised that the ringgit currently does not reflect Malaysia’s economic fundamentals and growth prospects.
“External factors, namely shifting expectations of major economies’ monetary policy paths and ongoing geopolitical tensions, have led to heightened volatility in both capital flows and exchange rates across the region, including the ringgit,” it said.
The coordinated initiatives by the Government and Bank Negara with the government-linked companies and government-linked investment companies and corporate engagements have gained further traction, cushioning the pressure on the ringgit.
“Bank Negara will continue to manage risks arising from heightened financial market volatility. Over the medium term, domestic structural reforms will provide more enduring support to the ringgit,” the central bank said.
