Malaysia maintains rate 4th time, accommodative stance

       Malaysia's central bank kept its benchmark interest rate steady for the fourth time, reiterating that its accommodative monetary policy stance will continue to be determined by the impact on inflation and domestic economic growth from new economic information.
      Bank Negara Malaysa (BNM) left its overnight policy rate (OPR) at 1.75 percent, unchanged since July 2020 when it was cut for the fourth time last year in response to the hit to economic activity from the spread of the COVID-19 pandemic.

      Last year BNM cut its key rate by a total of 125 basis points and since May 2019, when it began a monetary easing cycle, the rate has been cut five times by a total of 150 points.

      Although the latest data for Malaysia point to improvements in external demand and continued consumer spending amidst a global economy that is gaining momentum, BNM said the risks to the outlook for growth from the pandemic remain tilted to the downside, albeit they have abated slightly.

      As in its previous policy statement from January, the central bank said the impact on growth from new containment measures to prevent the spread of COVID-19 will be less severe than in the second quarter of last year and growth is projected to improve from the second quarter onwards.

      Economic activity will improve on the basis of a recovery in global demand, increased public and private sector spending, continued policy measures and more targeted containment, higher productions from manufacturing and oil and gas.

     "The roll-out of the domestic COVID-19 vaccine programme will also lift sentiments and economic activity," BNM said.

     Last year Malaysia's gross domestic product shrank 5.6 percent, the steepest fall since the 1998 Asian financial crises, and the International Monetary Fund in January forecast 7.0 percent growth this year.

     Inflation in Malaysia has remained negative since March last year though it rose in January to minus 0.2 percent from minus 1.4 percent in December and BNM expects it to rise in coming months and temporarily spike in the second quarter due to higher oil prices and a low comparison base.

     But underlying inflation is expected to remain subdued amid continued spare capacity in the economy and while headline inflation is expected to moderate after the spike, the bank said the outlook is subject to developments in global oil and commodity markets.

    Bank Negara Malaysia issued the following statement:

"At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 1.75 percent.

The global economic recovery, while uneven, is gaining momentum, supported by steady improvements in manufacturing and trade activity. The ongoing roll-out of vaccination programmes in many economies, together with policy support, will further facilitate an improvement in private demand and labour market conditions. While financial markets have experienced bouts of volatility, financial conditions remain supportive of economic activity. Risks to the growth outlook have abated slightly, but remain tilted to the downside, primarily due to uncertainty over the path of the COVID-19 pandemic and effectiveness of the vaccination programmes.

For Malaysia, latest indicators point to improvements in external demand and continued consumer spending. While the re-imposition of containment measures will affect growth in the first quarter, the impact is expected to be less severe than that experienced in the second quarter of 2020. Going forward, growth is projected to improve from the second quarter onwards, driven by the recovery in global demand, increased public and private sector expenditure amid continued support from policy measures and more targeted containment measures. Growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the E&E and primary-related sub-sectors, as well as oil and gas facilities. The roll-out of the domestic COVID-19 vaccine programme will also lift sentiments and economic activity. The growth outlook, however, remains subject to downside risks, stemming mainly from ongoing uncertainties in developments related to the pandemic, and potential challenges that might affect the roll-out of vaccines both globally and domestically.

Headline inflation in 2021 is projected to average higher, primarily due to higher global oil prices. In terms of trajectory, headline inflation is anticipated to temporarily spike in the second quarter of 2021 due to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, before moderating thereafter. Underlying inflation is expected to remain subdued amid continued spare capacity in the economy. The outlook, however, is subject to global oil and commodity price developments.

The MPC considers the stance of monetary policy to be appropriate and accommodative. Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will continue to be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth. The Bank remains committed to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery."

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