BNM maintains OPR at 3%, rate hike could be on the cards

By NG MIN SHEN / Pic By MUHD AMIN NAHARUL

BANK Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) at 3%, as decided during its Monetary Policy Committee (MPC) meeting yesterday.

The central bank said the stance of monetary policy remains accommodative at the current level of the OPR, while Malaysia’s economic growth has become more entrenched with continued strong performances from the domestic and external sectors.

A statement by BNM noted that growth momentum has also been lifted by strong spillovers from the external sector to the domestic economy as firms invest in productive capacity, raise wages and hire more workers.

For 2018, domestic demand is expected to remain the key source of growth. Private consumption will remain the largest driver of growth, supported by continued improvements in income and overall labour market conditions.

“Investment will be sustained by infrastructure projects and higher capital investment in the manufacturing and services sectors. The external sector will provide additional impetus to the economy.

Overall, the assessment is for growth to remain strong in 2018,” the statement read.

Headline inflation is not anticipated to see relief just yet as it will continue to be dependent on future global oil prices, which remain uncertain.

“For 2017 as a whole, headline inflation is expected to be at the upper end of the forecast range. Moving into 2018, headline inflation is projected to moderate on expectations of a smaller effect from global cost factors,” BNM said.

Domestic inflation has been motivated mostly by movements in global oil prices, as seen in Malaysia’s headline inflation which rose to 4.3% in September on higher global prices of refined oil caused by disruptions in the global supply.

Underlying inflation, as measured by core inflation, will be sustained by robust domestic demand.

Domestic financial markets have been resilient, whi le the ringgit has strengthened to better reflect economic fundamentals.

BNM said banking system liquidity remains sufficient with financial institutions continuing to operate with strong capital and liquidity buffers.

“The growth of financing to the private sector has been sustained and is supportive of economic activity,” it said.

However, the central bank did not discount the possibility of a rate hike to ensure the sustainability of the growth prospects of the Malaysian economy.

“Given the strength of global and domestic macroeconomic conditions, the MPC may consider reviewing the current degree of monetary accommodation,” BNM said.

The central bank has maintained the OPR at 3% since July 2016, when it slashed the overnight interest rate by 25 basis points from 3.25%.

This was the first reduction in seven years, aimed at ensuring continued steady growth of the local economy as well as protecting the country from global headwinds including the UK’s vote last year to exit the European Union.

The meeting also approved the schedule of MPC meetings for 2018. In accordance with the Central Bank of Malaysia Act 2009, the committee will convene six times during the year for two days at a time.

These meetings will be held on Jan 24 and Jan 25, March 6 and March 7, May 9 and May 10, July 10 and July 11, Sept 4 and Sept 5, as well as Nov 7 and Nov 8.

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