Malaysia Monetary Policy

Malaysia

Malaysia: Central Bank maintains rate in September

September 18, 2014

At its 18 September monetary policy meeting, the Central Bank decided to leave the Overnight Policy Rate (OPR) unchanged at 3.25%. The move was contrary to market expectations of a raise in the OPR. The Bank raised its policy rate by 0.25 percentage points in July after having kept the rate unchanged since May 2011.

Bank Negara Malaysia stated that global economic growth continues to expand at a moderate pace. Economic growth in Asia is being driven by improvements in the external sector as well as strengthening domestic demand. The Bank also highlighted the stability of international financial markets. Domestically, the Bank reflected that, “economic activity has been supported by the continued growth in domestic demand and exports.” Looking forward, the Bank expects domestic demand to remain the key driver of growth. Exports are expected to grow, although slowly, due to the base effects. Private consumption growth is expected to moderate while, conversely, the Bank sees investment spending remaining robust. Moreover, the Bank expects the positive momentum to be sustained and explained that it expects the, “economy to remain on a steady growth path.”

Regarding price developments, the Central Bank recognized that inflation has stabilized as the impact of the utilities and energy price adjustments associated with fiscal reordering moderate. In fact, inflation inched down from 3.3% in June to 3.2% in July. However, the Bank added that, going forward, inflation, “is expected to be above its long-run average due to the higher domestic cost factors.”

With strong growth prospects and inflation stabilizing, the Bank decided to maintain the current OPR. The Bank remarked that, “the current stance of monetary policy remains supportive of growth.” The Bank signaled that further adjustments could be made in the future depending on, “how new information will affect the assessment on the balance of risks.”

For 2014, panelists expect the monetary policy rate to end the year at 3.35%. For 2015, the panel expects the policy rate to end the year at 3.50%.


Author: Angela Bouzanis, Senior Economist

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Malaysia Monetary Policy September 2014

Note: Overnight Policy Rate in %.
Source: Bank Negara Malaysia (BNM).


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