OPR at 1.75% as economic recovery gains traction

by PRIYA VASU / Pic by MUHD AMIN NAHARUL

THE Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) maintained the Overnight Policy Rate (OPR) at 1.75% on the back of economic recovery gaining traction despite risk factors remaining a concern.

In a statement yesterday, BNM stated global economic recovery continues to strengthen, particularly in the major economies, supported by improvements in manufacturing and trade activity, although the pace may vary across countries.

“The ongoing rollout of vaccination programmes and sizeable fiscal stimulus measures in the US, as well as policy support in other major economies, will further facilitate an improvement in domestic demand.

“However, the recovery trajectory in some economies could be disrupted by a re-tightening of containment measures to curb Covid-19 resurgences,” the central bank noted.

The central bank further noted that the recent financial market volatility has somewhat receded, and financial conditions remain supportive of growth.

“The balance of risks to the growth outlook remains tilted to the downside, mainly due to uncertainty over the path of the pandemic, as well as potential risks of heightened financial market volatility,” noted BNM.

For Malaysia, latest indicators point to continued improvements in economic activity in the first quarter of 2021 (1Q21) and into April.

While the recent re-imposition of containment measures in select locations will affect economic activity in the short term, the impact will be less severe as almost all economic sectors are allowed to operate.

Economic growth trajectory is projected to improve, driven by the stronger recovery in global demand and increased public and private sectors expenditure amid continued support from policy measures.

“Growth will also be supported by higher production from existing and new manufacturing facilities, particularly in the electrical and electronics and primary-related subsectors, as well as oil and gas facilities.

“The progress of the domestic Covid-19 vaccine programme will also lift sentiments and contribute towards recovery in economic activity,” added the central bank.

Headline inflation in 2021 is projected to average higher between 2.5% and 4%, primarily due to the cost-push factor of higher global oil prices.

In terms of trajectory, headline inflation is anticipated to temporarily spike in 2Q21, due particularly to the lower base from the low domestic retail fuel prices in the corresponding quarter of 2020, added BNM.

This will be transitory as headline inflation is projected to moderate thereafter as this base effect dissipates.

Underlying inflation, as measured by core inflation, is expected to remain subdued, averaging between 0.5% and 1.5% for the year, amid continued spare capacity in the economy, the central bank added. The outlook, however, is subject to global oil and commodity price developments.

“The MPC considers the stance of monetary policy to be appropriate and accommodative. Given the uncertainties surrounding the pandemic, the stance of monetary policy going forward will continue to be determined by new data and information, and their implications on the overall outlook for inflation and domestic growth. The bank remains committed to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery,” said BNM.

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