Malaysia: Central Bank maintains policy rate at 3.25%
July 9, 2015
At its 9 June monetary policy meeting, the Central Bank decided to leave the Overnight Policy Rate (OPR) unchanged at 3.25%. The decision was in line with market expectations.
Bank Negara Malaysia stated that global economic growth continues to expand at a moderate pace in spite of varying performance across countries. Downside risks to growth come from the instability of financial markets following developments in Europe and from the uncertainty surrounding policy normalization in major central banks. On the domestic front, Malaysia’s economic growth continues to be supported mainly by domestic demand, while exports continued to moderate in the first quarter of 2015. The Bank pointed out that, “overall growth continues to be underpinned by domestic demand. Growth in private consumption is expected to be slower following the frontloading of consumption activity prior to the implementation of the Goods and Services Tax (GST) in the first quarter. ”
Regarding prices, headline inflation averaged 2.0% in April and May, however the Bank recognized that inflationary pressures will pick up in the second half of 2015 following the implementation of the Goods and Services Tax in Q1, and a rebalancing of domestic fuel prices. Inflation is then expected to moderate in Q2 2016, though the bank foresees domestic demand helping to keep underlying inflation stable overall.
Certain domestic and external developments have affected the value of the ringgit and the functioning of domestic capital markets. That being said, the Bank clarified that the financial system has sufficient liquidity and capital buffers necessary to continue functioning. Credit growth has also increased steadily and thus continues to support the economy.
Finally, the Bank remarked that, “the stance of monetary policy remains accommodative and supportive of economic activity.” The next meeting has been rescheduled and will conclude on 11 September.
Author: Robert Hill, Economist