The central bank emphasised that the OPR level is consistent with the current assessment of inflation and growth prospects.
PETALING JAYA: As anticipated, Bank Negara has kept its overnight policy rate (OPR) unchanged at 3% after its fifth Monetary Policy Committee or MPC of 2024 meeting yesterday, pointing out that its policy stance remains supportive of the economy.
On top of that, the central bank emphasised that the OPR level is also consistent with the current assessment of inflation and growth prospects, as it continues to keep its eye on ongoing developments relating to domestic inflation and growth trajectories going into 2025.
Looking ahead, Bank Negara commented that the latest indicators pointed towards sustained strength in economic activity, driven by resilient domestic expenditure and higher export activity.
“Going forward, exports are expected to be further lifted by the global technology upcycle, given Malaysia’s position in the semiconductor supply chain, as well as continued strength in non-electrical and electronic (E&E) goods,” it said.
Besides that, it said tourist spending is expected to continue to increase, and employment and wage growth as well as policy measures remain supportive of household spending.
At the same time, the regulator predicted that robust expansion in investment activity would be sustained by the 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.
Explaining matters from a bigger picture perspective, Bank Muamalat (M) Bhd chief economist Mohd Afzanizam Abdul Rashid believes that keeping the OPR steady is the correct move at the current juncture.
He mentioned that this was because the central bank’s decision was primarily driven by domestic factors, outlining inflation dynamics as a component to keep an eye on.
With subsidy rationalisation of the RON95 fuel still being held back, Afzanizam said: “Since petroleum accounts for 5.5% of the total consumer price index (CPI) weight as compared to diesel’s 0.2%, the changes in RON95 is expected to have greater impact on inflation.”
Given that Malaysia has continued to chart strong growth in the second quarter of 2024 (2Q24) and the trend is likely to continue into the latter half of the year, he cautioned that the impression is that the balance of risks for inflation is tilted to the upside.
“For now, the domestic factors have been quite favourable and the inflows of foreign funds into our capital market suggest that market confidence would translate into an appreciation of the ringgit as well as improved sentiment among businesses and households,” said the economist.
Earlier in the week, economists Julia Goh of UOB Global Economics and Markets Research and Prof Geoffrey Williams had both voiced their support for Bank Negara’s “balanced” policy, with the former believing the OPR rate would provide further support for the local currency.
Williams, meanwhile, had advocated for a steady monetary policy in the present environment, saying it was unnecessary at this point in time to effect a change in rates.
He said inflation was hovering within the expected range in the midst of a growing economy, while the financial sector has also remained sound, before cautioning that a lowering of the OPR may rewiden the interest rate differentials to the detriment of the ringgit’s recent strengthening.
Concurrently, Bank Negara reported that the higher intermediate and capital imports will further support export and investment activity. Elaborating on inflation, it said spillover effects from the diesel price adjustment to broader prices have been contained, given effective mitigation and enforcement measures to minimise the cost impact on businesses.
“For the year as a whole, average headline and core inflation are expected to remain within the earlier projected ranges and are unlikely to exceed 3%,” it added.
Externally, the central bank said global growth is expected to be sustained by positive labour market conditions, moderating inflation and less restrictive monetary policy.
Global trade recovery is expected to continue, supported by both E&E as well as non-E&E products, although it remains subject to downside risks, mainly from further escalation of geopolitical tensions, volatility in global financial markets, and slower growth momentum in major economies, said Bank Negara.
