Headline inflation is forecasted to average between 2.2% and 3.2% in 2022 as the high input costs are projected to exert some pressures on selected fresh food prices, Bank Negara’s Economic Monitor Review said. The Economic and Monetary Review sets out BNM’s economic assessments and outlook.
Meanwhile, it said that 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.
On the labour market conditions, the report said that 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,” it said
On monetary policy, the report said that it will remain accommodative to support a sustainable economic recovery while ensuring price stability. BNM is cognisant of the consequences of keeping interest rates low for an extended period.
It said that 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, it said that 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.
Bank Negara Malaysia said in the “Financial Stability Review for Second Half 2021, financial institutions remained vigilant in managing their risks given the continued uncertainty posed by domestic and global developments. The Financial Stability Review is a biannual publication that details BNM’s assessment of risks and outlook for domestic financial stability.
The report said that credit remains a key focus as banks continue to build up provisions to buffer against a potential rise in impairments. Provisions against loan losses in the banking system currently stand at 143%, which is close to its historical high.
Despite expectations of continued market volatility, conditions in domestic financial markets are expected to remain orderly. This is supported by Malaysia’s deep and liquid bond market, diverse investor base, as well as positive real yields.
It said that sound risk management practices of financial institutions, coupled with their strong capital and liquidity buffers, will continue to preserve domestic financial stability.
It is said that the latest stress tests conducted by BNM continue to affirm the resilience of capital buffers of banks and insurers to withstand potential losses under severe macroeconomic and financial shocks, while sustaining support for economic recovery. “Almost all banks were able to maintain post-shock capital ratios above the regulatory minimum. Banks’ excess capital buffers currently amount to RM135 billion,” it said
On economic growth, it said that the Malaysian economy is expected to grow between 5.3% and 6.3% for the whole of 2022.
It is said that 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,” it said
