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Malaysia Monetary Policy March 2021

Malaysia: Bank Negara Malaysia stands pat in March

At its 4 March meeting, the Monetary Policy Committee of Bank Negara Malaysia (BNM) kept the overnight policy rate unchanged at its record low of 1.75%, marking the fourth consecutive hold. The decision was in line with market expectations. The Bank’s assessment that the latest Covid-19 restrictions imposed in January would not derail the recovery, as well as its expectations of returning inflation, drove its decision to hold fire. Although the movement restrictions are set to weigh on the economy in Q1, the recovery is expected to pick up pace notably in the second quarter on the back of firming private sector activity and strengthening foreign demand, as well as progress in vaccination plans. On the inflation front, a low base effect is expected to result in an inflation spike in Q2, but this should be temporary nonetheless. All in all, the Bank sees inflation averaging higher in 2021 compared to last year, but it will remain closely linked to commodity and oil price movements.

Looking ahead, the Bank’s communiqué did not include any strong forward guidance. The Bank noted that risks remain tilted to the downside, although they have eased somewhat, mainly owing to uncertainty surrounding the course of the pandemic and pace of the vaccine rollout. Lastly, as in the previous meeting, the Bank reiterated its commitment to “utilize its policy levers as appropriate to create enabling conditions for a sustainable economic recovery”.

Commenting on the possible direction of policy ahead, analysts at UOB, said:

“We expect Bank Negara Malaysia (BNM) to keep the Overnight Night Policy Rate (OPR) unchanged at 1.75% through 2021. […]We think that BNM may be more inclined towards targeted measures to support an uneven recovery such as upsizing the support funds for SMEs and hard-hit segments. So far, more than 70% of allocated facilities worth MYR 23.1bn have been utilized. The government has also accelerated and broadened some of the fiscal measures announced earlier.”

The next monetary policy meeting is scheduled for 6 May.

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