KUALA LUMPUR: Bank Negara kept the overnight policy rate (OPR) unchanged at 3% after concluding its two-day Monetary Policy Committee (MPC) meeting, a decision widely anticipated by economists.
The central bank has maintained the benchmark lending rate since its 25-basis-point increase in May 2023.
According to a Reuters poll of economists, Bank Negara will leave its key interest rate at 3.00% for the eighth consecutive meeting and hold rates at least through the end of next year.
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“At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.
“The MPC remains vigilant to ongoing developments to inform the assessment on the domestic inflation and growth trajectories. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability,” Bank Negara said in a statement.
It said looking ahead, global growth is expected to remain stable, with headwinds from tight monetary policies and reduced fiscal support being offset by strong labour market conditions and moderating inflation.
Bank Negara noted that global trade is strengthening as the global tech upcycle gains momentum. In recent months, headline and core inflation continued to edge downwards, with some central banks beginning to ease monetary policy.
However, the growth outlook remains vulnerable to downside risks, including the potential escalation of geopolitical tensions, higher-than-expected inflation, and volatility in global financial markets.
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For the Malaysian economy, Bank Negara said the latest indicators point towards sustained strength in economic activity in the second quarter of 2024, driven by resilient domestic expenditure and better export performance.
“Going forward, exports are expected to be further lifted by the global tech upcycle given Malaysia’s position in the semiconductor supply chain, as well as continued strength in non-electrical and electronics goods. Tourist arrivals and spending are also poised to rise further. Continued employment and wage growth, as well as policy measures, will continue to support household spending,” it said.
Investment activity is expected to be bolstered by the ongoing advancement of multi-year projects in both the private and public sectors, the execution of key initiatives under national master plans, and a higher realisation of approved investments.
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.
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Both headline and core inflation averaged 1.8% in the first five months of the year. As expected, inflation will trend higher in the second half of 2024, amid the recent rationalisation of diesel subsidies.
Nevertheless, Bank Negara said the increase in inflation will remain manageable given the mitigation measures to minimise the cost impact on businesses.
Going forward, the upside risk to inflation would be dependent on the extent of spillover effects of further domestic policy measures on subsidies and price controls to broader price trends, as well as global commodity prices and financial market developments.
“For the year as a whole, headline and core inflation are expected to average within the earlier projected ranges of 2.0% - 3.5% and 2.0% - 3.0% respectively,” Bank Negara said.
Meanwhile, the ringgit remains largely influenced by external factors, such as expectations regarding the monetary policy paths of major economies and ongoing geopolitical tensions.
“The positive impact of the coordinated initiatives by the government and Bank Negara with the government-linked companies (GLCs) and government-linked investment companies (GLICs), and corporate engagements have continued to cushion the pressure on the ringgit.
“Bank Neagra 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.
