(Image: Bloomberg)
The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has once again increased the overnight policy rate (OPR) by 25 basis points (bps), bringing it from 2.25% to 2.50%. With this, the ceiling and floor rates of the OPR are increased to 2.75% and 2.25%, respectively.
BNM said that this decision to further adjust the degree of monetary accommodation is spurred by the positive growth prospects for Malaysia’s economy. “The transition to endemicity and policy measures have contributed to the stronger growth performance in the second quarter of 2022. Going forward, indicators point to continued growth, underpinned by support from private sector spending,” it said in a statement.
The central bank also noted that Malaysia’s labour market conditions and income prospects remain positive, while unemployment and underemployment continue to decline further. These are also supported by the reopening of international borders, which is expected to stimulate the tourism sector and other relevant businesses. Similarly, investment activity and prospects, too, are looking up as multi-year projects are brought to fruition. As for inflation, BNM believes it will remain partly contained by existing price controls, fuel subsidies, and the prevailing spare capacity in the economy.
The central bank does caution, however, that external demand may dip due to a slowdown in global growth. Other central banks around the world are also expected to continue adjusting their monetary policy settings to reduce inflationary pressures. In particular, the US government’s aggressive adjustments in US interest rates have resulted in a strong US dollar environment, which led to higher volatility in financial markets that affected other currencies – including the ringgit. Further escalation of geopolitical conflicts and worsening supply chain disruptions, too, are some downside risks to the domestic economy.
That said, BNM believes that these developments are not expected to derail Malaysia’s growth, and will continue to assess evolving conditions and their implications on Malaysia’s domestic inflation and growth. “Any adjustments to the monetary policy settings going forward would be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support a sustainable economic growth in an environment of price stability,” the central bank reiterated.
This latest increase marks the third OPR hike to be implemented in 2022; in May 2022, BNM increased the OPR by 25bps for the first time – to 2.0% – after paring it down to an all-time low of 1.75% via multiple cuts in 2020 and 2021. Following that, the OPR was raised by another 25bps in July 2022 to 2.25%.