BANK Negara Malaysia (BNM) increased the Overnight Policy Rate (OPR) by 25 basis points (bps) to 2% from the record low of 1.75% the central bank held since July 7, 2020.
The Monetary Policy Committee (MPC) statement today noted the decision to hike was driven by inflationary pressures arising from the reopening of the global economy and the improvement in labour market conditions.
Throughout the Covid-19 crisis, the OPR was reduced by a cumulative 125bps to a historic low of 1.75% to provide support to the economy.
“With the domestic growth on a firmer footing, the MPC decided to begin reducing the degree of monetary accommodation. This will be done in a measured and gradual manner, ensuring that monetary policy remains accommodative to support sustainable economic growth in an environment of price stability,” the central bank statement read.
BNM added the latest Malaysia economic indicators show growth is on a firmer footing, driven by strengthening domestic demand amid sustained export growth.
“The labour market is further lifted by a lower unemployment rate, higher labour participation and better income prospects. The transition to endemicity on April 1, 2022, would strengthen economic activity, in line with the further easing of restrictions and the reopening of international borders. Investment activity and prospects have also improved, underpinned by the realisation of multi-year projects and positive growth outlook,” BNM said.
However, it stated risks to growth remain, which include weaker-than-expected global growth, further escalation of geopolitical conflicts, worsening supply chain disruptions and adverse developments surrounding Covid-19.
Headline inflation is projected to average between 2.2% and 3.2% in 2022. Given the improvement in economic activity amid lingering cost pressures, underlying inflation, as measured by core inflation, is expected to trend higher to average between 2% and 3% in 2022.
“The inflation outlook continues to be subject to global commodity price developments, arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions, as well as domestic policy measures on administered prices,” BNM added.
