BNM Decides To Keep OPR At 3% Longer

The Central Bank today at its Monetary Policy Committee meeting decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent, as expected by most economic analysts.

In a statement, the MPC said global economy continues to expand amid resilient labour markets and continued recovery in global trade. Looking ahead, the commitee said the 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 continues to strengthen as the global tech upcycle gains momentum, global headline and core inflation continued to edge downwards in recent months with some central banks commencing monetary policy easing. 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.

Ad for the Malaysian economy, the MPC added that 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. However, it noted that growth outlook is subject to downside risks from weaker- than-expected external demand and larger declines in commodity production.

Meanwhile, the commitee noted that the 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.

It also expects inflation to trend higher in the second half of 2024, amid the recent rationalisation of diesel subsidies. Nevertheless, 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.

The ringgit continues to be primarily driven by external factors, namely expectations of major economies’ monetary policy paths and ongoing geopolitical tensions. The MPC said over the medium term, domestic structural reforms will provide more enduring support to the ringgit.

At the current OPR level, MPC said the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects.

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