Malaysia: Central Bank maintains rates in March despite rising inflation
March 6, 2014
At its 6 March monetary policy meeting, the Central Bank left the Overnight Policy Rate (OPR) unchanged at 3.00%, a decision that was consistent with market expectations. The Bank has kept its policy rate at the current level since May 2011. Bank Negara Malaysia stated that global economic growth remains moderate and that recovery in major economies is, “modest and uneven.” Growth in Asia is being driven by improvements in the external sector, although there is the continued threat of spillovers from volatility in international financial markets. Domestically, recent data show a continued increase in exports and an expansion in private investment. While exports and investment will likely sustain their growth going forward, domestic demand is expected to moderate due to the fiscal consolidation policies that were introduced recently. Specifically, subsidy cuts and fuel tariffs are having an impact on consumer purchasing power. Regarding price developments, the Central Bank recognized that inflation has been on an uptrend due to supply disruptions caused by adverse weather conditions and rising domestic cost factors associated with fiscal reordering. Inflation picked up from 3.2% in December to 3.4% in January, which marked the highest level since July 2011. Nonetheless, the Bank added that, going forward, “the subdued external price pressures and moderate domestic demand conditions will, to some extent, contain the impact of these cost factors on the underlying inflation.” For 2014, panelists expect the monetary policy rate to end the year at 3.26%. For 2015, the panel expects the policy rate to end the year at 3.41%.
Author: Carl Kelly, Economist