Malaysia raises rate 25 bps as inflation above average

    Malaysia's central bank raised its benchmark Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent due to inflation running above its long-run average and the prospects of firm economic growth.
    It is the first rate rise by Bank Negara Malaysia (BNM) since May 2011 when the central bank raised its rate by 25 basis points.
    BNM said the normalization of monetary conditions was aimed at easing the rise of economic and financial imbalances that could undermine growth prospects and a further change would depend on the balance of risks surrounding the outlook for growth and inflation.
   
    Bank Negara Malaysia issued the following statement:

"Amid the firm growth prospects and with inflation remaining above its long-run average, the MPC decided to adjust the degree of monetary accommodation. This normalisation of monetary conditions also aims to mitigate the risk of broader economic and financial imbalances that could undermine the growth prospects of the Malaysian economy. At the new level of the OPR, the stance of monetary policy remains supportive of the economy.

 Further review of the degree of monetary accommodation will depend on the MPC’s assessment of the balance of risks surrounding the outlook for domestic growth and inflation.  At the same time, the MPC will also continue to monitor for risks of destabilising financial imbalances."


At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to raise the Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent. The floor and ceiling rates of the corridor for the OPR are correspondingly raised to 3.00 percent and 3.50 percent respectively.

After moderating in the first quarter, the global economy has resumed its path of gradual recovery. Economic activity in the major advanced economies continues to expand at a modest pace. In Asia, the better external environment is supporting growth amid continued expansion in domestic demand. In this environment, international financial markets have remained relatively stable.

For Malaysia, latest indicators point to continued strength in exports and private sector activity. Going forward, the overall growth momentum is expected to be sustained. Exports will continue to benefit from the recovery in the advanced economies and from regional demand. Investment activity is projected to remain robust, led by the private sector. Private consumption will be supported by stable income growth and favourable labour market conditions. The prospects are therefore for the Malaysian economy to remain firmly on a steady growth path.

Inflation has been relatively stable as the effects of the price adjustments for utilities and energy continue to moderate. Demand driven inflation remains contained. Looking ahead, inflation is, however, expected to remain above its long-run average due to the higher domestic cost factors. 

Amid the firm growth prospects and with inflation remaining above its long-run average, the MPC decided to adjust the degree of monetary accommodation. This normalisation of monetary conditions also aims to mitigate the risk of broader economic and financial imbalances that could undermine the growth prospects of the Malaysian economy. At the new level of the OPR, the stance of monetary policy remains supportive of the economy.
 
Further review of the degree of monetary accommodation will depend on the MPC’s assessment of the balance of risks surrounding the outlook for domestic growth and inflation.  At the same time, the MPC will also continue to monitor for risks of destabilising financial imbalances."

     END OF STATEMENT

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