Malaysia: Central Bank maintains policy rate at 3.25%
September 11, 2015
At its 11 September monetary policy meeting, Bank Negara Malaysia (BNM) decided to leave the Overnight Policy Rate (OPR) unchanged at 3.25%. The decision was in line with market expectations.
The BMN stated that global economic growth continues to expand at a moderate pace in spite of varying performance across countries. Downside risks to economic expansion? come from moderating growth across Asia and other emerging markets, however, domestic demand in the region remains supportive. Malaysia is also susceptible to subdued commodities prices as well as volatility in financial markets.
In Malaysia, the adjustment to the Goods and Services Tax continues to hold back domestic consumption in Q3. This effect will gradually dissipate as wages increase. The Bank also foresees investment increasing as a result of heightened capital spending in the manufacturing and services sector. BNM stressed that although the economy was entering challenging times amid heightened levels of uncertainty regarding domestic and international markets, the country was moving from a position of strength, with low levels unemployment and manageable levels of indebtedness.
Regarding prices, headline inflation averaged 2.9% in June and July, however the Bank recognized that inflationary pressures will pick up in the second half of 2015 as the weakened ringgit stokes inflationary pressures, although lower commodity prices will mitigate some of these pressures. The Bank foresees inflation peaking in early 2016 and easing though the remainder of the year.
Certain domestic and external developments have affected the value of the ringgit and the functioning of domestic capital markets. BNM stated that, “these factors include the weaker commodity prices, the strength of the U.S. dollar, and the uncertainty in the global financial markets. The ringgit exchange rate will reflect the underlying fundamentals of the economy when the external and domestic uncertainties recede. Bank Negara Malaysia will continue to ensure the orderly functioning of the money and foreign exchange markets.”
Finally, the Bank remarked that, “the stance of monetary policy remains accommodative and supportive of economic activity.” The policy rate decision will be announced on 5 November.
Author: Robert Hill, Economist