BNM publishes Monetary Policy Statement. Aims to maintain OPR at 1.75

The Monetary Policy Committee (MPC or committee) of Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 1.75 percent. The MPC decided this rate at its meeting today.

The global economy continues to recover, led by improvements in manufacturing and export activity. Latest indicators show that economic activity picks up in most advanced and regional economies. The most pronounced recovery momentum is occurring in PR China. However, recent resurgences in COVID-19 cases have caused some significant economies to re-introduce containment measures. These measures suggest that the global economic recovery will likely remain uneven in the near-term. Financial conditions have improved, although risk aversion remains elevated. The overall outlook remains subject to downside risks, primarily due to the risk of a further resurgence of COVID-19 infections. The revival could lead to weaker business, employment and income conditions.

Policy Statement factors in economic stimulation

For Malaysia, the latest indicators point towards significant improvement in economic activity in the third quarter. The introduction of measures to contain COVID-19 in several states could affect recovery in the fourth quarter. Nonetheless, growth expectations for the year 2020 stay within the earlier forecasted range. For 2021, projections show that economic activity will improve further. The recovery in global demand will underpin this, a turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new facilities. Nevertheless, the pace of recovery will be uneven across sectors, with economic activity in some industries remaining below pre-pandemic levels, and a slower improvement in the labour market. Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the pandemic globally and domestically.

In line with earlier assessments, headline inflation is likely to average negative this year. This average is due to the substantially lower global oil prices. For 2021, projections for headline inflation may average higher. However, international oil and commodity prices will continue to affect the outlook significantly. Expectations of Underlying inflation is to remain subdued in 2021 amid continued spare capacity in the economy.

OPR to provide a stimulus

The committee considers the stance of monetary policy to be appropriate and accommodative. The cumulative 125 basis points reduction in the OPR this year will continue to provide stimulus to the economy. The committee will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth. The Bank remains committed to utilising its policy levers as appropriate to create enabling conditions for a sustainable economic recovery.

The meeting also approved the schedule of MPC meetings for 2021. Per the Central Bank of Malaysia Act 2009, the committee will convene six times during the year. The sessions lasted over two days. The MPC published the Monetary Policy Statement at 3 p.m. on the second day of the meeting.

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