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Malaysia Monetary Policy January 2022

Malaysia: Bank Negara Malaysia holds rate in January

At its first meeting of the year on 20 January, the Monetary Policy Committee of Bank Negara Malaysia (BNM) kept the overnight policy rate stable at its all-time low of 1.75%, marking the ninth consecutive hold, coming in line with market expectations.

Promoting the economic recovery underpinned the Bank’s decision to maintain its accommodative stance, and the move was supported by well-anchored inflation expectations. Available data suggests that the economy rebounded in Q4 in line with easing Covid-19 curbs, with GDP growth now estimated to end 2021 at between 3.0%–4.0%. On the price front, inflation averaged 2.3% in January–November, well within the Central Bank’s estimates, while a fading base effect from fuel prices should offset inflationary pressures stemming from accelerating economic activity. That said, the headline reading remains tied to commodity price fluctuations.

Looking ahead, the Bank’s communiqué did not include any strong leads on future policy moves. With regard to growth, the Bank noted that although a pickup in private-sector activity and a tightening labor market will promote growth, the pace of recovery in global demand, persistent supply-chain disruptions and the spread of new Covid-19 variants cloud the outlook. Against this backdrop and amid persistent risks to the inflation outlook, the Bank stressed that monetary policy decisions will continue to be data-driven. Most of our panelists pencil in hikes in the second half of the year.

The next monetary policy meeting is scheduled for 3 March 2022.

Commenting on the monetary policy outlook as well as the outlook for growth, Euben Paracuelles Rangga Cipta, analysts at Nomura, said:

“We reiterate our forecast that BNM will raise the OPR by a total of 50bp this year, starting in Q3. We have been somewhat surprised by the early shift in BNM’s forward guidance of supporting growth (or lack thereof) as we expected a more neutral tone today on the back of the Omicron threat. However, this is nonetheless supportive of our view that BNM will start policy normalization relatively early in the ASEAN region because of the strengthening economic recovery. We forecast 2022 GDP growth at an above-consensus 7.0% from 3.2% last year (above Consensus’ 6.1% and the official forecast of 5.5-6.5%), which implies economic output will return to its pre-Covid level by Q1 2022. In addition, we still think the modest OPR hikes we expect this year, a total 50bp, remain in line with BNM looking to reduce the level of accommodation gradually given still-elevated uncertainty.”

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