Bank Negara Malaysia has published its Annual Report 2021, Economic and Monetary Review 2021 and Financial Stability Review for Second Half 2021.
The AR 2021 sets out the initiatives and workings of the Bank in 2021 in fulfilling its mandates to promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy. This includes the means by which BNM discharged its mandates to support Malaysia’s transition through and out of the pandemic, as well as other challenges such as the floods. AR 2021 also provides an account of the Bank’s operations and resources that enable it to function effectively and efficiently.
The Economic and Monetary Review sets out BNM’s economic assessments and outlook.
Among the highlights in the Economic and Monetary Review is the GDP outlook, in it BNM says that 2022 is set to be a watershed year as most countries progressively transition towards endemic management of COVID-19. However, it adds that even as the global economy is expected to continue its recovery path, policymakers are adjusting their policy settings against rapidly evolving uncertainties, including the military conflict in Ukraine which began in February.
The pace of economic recovery in Malaysia is projected to gather further momentum amid the reopening of the economy and international borders. With better COVID-19 management and higher vaccination rates, BNM expects less disruption to domestic economic activity and spending in the event of resurgences. Malaysia will also continue to benefit from the expansion in global demand. For 2022 as a whole, the economy is expected to grow between 5.3% and 6.3%.
As for headline inflation, the Central Bank forecasts it to average between 2.2% and 3.2% in 2022. While high input costs are projected to exert some pressures on selected fresh food prices, these pressures will be partly mitigated by price controls. Meanwhile, core inflation is expected to average higher between 2.0% and 3.0% in 2022 due to stronger demand conditions amid lingering cost pressures. However, the extent of upward adjustments in core inflation will remain partly contained by the continued slack in the economy and labour market.
Labour market conditions are expected to improve in 2022 as economic activity picks up. The unemployment rate is expected to decline further to around 4% of the labour force. This sustained recovery in employment and income is expected to drive an improvement in household spending.
In this sense, the monetary policy will remain accommodative to support a sustainable economic recovery while ensuring price stability. BNM said it is cognisant of the consequences of keeping interest rates low for an extended period of time. As the outlook for inflation remains largely supply-driven, BNM is closely monitoring for any signs of potential second-round effects, where price pressures could become more entrenched as domestic demand recovers. Ultimately, any potential adjustments to the degree of accommodation will remain data-dependent and be undertaken in a measured and gradual way to preserve an appropriate level of support to the economy.
Governor Tan Sri Nor Shamsiah Yunus said, “Going forward, well-executed structural reforms are needed to address the critical challenge of reinvigorating growth opportunities and strengthening our economic fundamentals. The three key areas that we ought to focus on are inclusivity, digitalisation, and sustainability. We must make the most out of this recovery period to rebuild better and ensure that Malaysia is well-prepared to harness future trends to our benefit.”
