Malaysia Monetary Policy July 2021


Malaysia: Bank Negara Malaysia keeps rate stable in July

July 8, 2021

At its 8 July meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) left the overnight policy rate unchanged at 1.75%, marking the sixth consecutive hold. The decision was broadly in line with market expectations.

The reimposition of stringent Covid-19 restrictions, which likely hampered the recovery, and relatively well-anchored inflation expectations prompted the Bank to maintain its accommodative stance. Following a better-than-anticipated GDP result in Q1, high-frequency indicators suggest that the recovery carried on in the second quarter. However, stricter Covid-19 restrictions from early May, amid soaring numbers of new cases, are bound to have restrained momentum, despite fiscal injections and solid external demand. Moreover, significant downside risks persist, with uncertainty over how long the restrictive measures will last and a fragile global recovery clouding the outlook. On the inflation front, despite a spike in April–May, mainly due to a low base effect, the Bank noted that it expects price pressures to ease, stressing that the headline reading remains closely linked to commodity and oil price fluctuations.

Looking ahead, the Bank’s communiqué did not include any leads on forward guidance. However, the Bank noted that, in light of lingering pandemic-related uncertainty, future decisions will be largely data-dependent. It also reiterated its commitment “to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery”. As such, all of our panelists see the Bank keeping the overnight policy rate at 1.75% through year-end.

Julia Goh and Loke Siew Ting, economists at United Overseas Bank, said:

“We still see limited room for further monetary policy easing given the Fed’s hawkish shift, other central banks’ readiness to normalise their monetary policy, and global inflation keeps creeping up. There is also a sizeable amount of stimulus funds available to be spent towards year-end. We stick to our view that the OPR will be kept steady at 1.75% for the rest of the year.”

The next monetary policy meeting is scheduled for 9 September.

FocusEconomics panelists project the overnight policy rate to end 2021 at 1.73% and 2022 at 1.96%.

Author:, Junior Economist

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