BNM holds OPR at 1.75% as risks to recovery remain


BANK Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) decided to maintain its benchmark Overnight Policy Rate (OPR) at 1.75% at its meeting yesterday. 

In a statement, the central bank stated the re-imposition of nationwide containment measures to curb the resurgence in Covid-19 cases had dampened the growth momentum. 

The central bank recently slashed its economic growth forecast for the local economy for 2021 by half due to the negative impact of the lockdowns instituted to contain the spread of the Covid-19 pandemic across the country. 

The decision did not surprise economists with many expecting the MPC to stand steady at the current level as recovery momentum starts to pick up, helped by the vaccination rollout. 

“The bar for BNM to cut-rate appears to be a lot loftier than we had anticipated. If months of lockdown resulting in the spectre of a technical recession do not move the needle now, it would probably take a manifestation of risks of much greater magnitude for BNM to be easing. The 1.75% level of the OPR has been a tough floor to crack and likely to remain so in the foreseeable future, unless events take a dramatic turn southward,” Wellian Wiranto, an economist at OCBC Bank stated in a commentary yesterday. 

In its release yesterday, BNM stated the relaxations of movement orders and allowing more economic sectors to operate, along with higher adaptability of firms to the new operating environment and continued policy support, would partly mitigate the impact and allow the economy to resume its recovery path. 

“Moving forward, the further easing of containment measures, rapid progress of the domestic vaccination programme and continued expansion in global demand will support the growth momentum going into 2022,” said BNM. 

Risks to the growth outlook remain tilted to the downside due to external and domestic factors. 

These include delays in the easing or re-imposition of broad-based containment measures due to the impact of new Covid-19 variants of concern and a weaker than expected global growth recovery. 

Year-to-date, headline inflation has averaged 2.3% and is projected to average between 2% and 3% for 2021. 

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 outlook continues to be subject to global commodity price developments and policy measures to alleviate the cost burden of the public. 

“Fiscal and financial measures will continue to cushion the economic impact on businesses and households and provide support to economic activity. 

Given the uncertainties surrounding the pandemic, the stance of monetary policy will continue to be determined by new data and information and their implications on the overall outlook for inflation and domestic growth,” BNM stated. 

The central bank remains committed to utilise its policy levers as appropriate to foster enabling conditions for a sustainable economic recovery. 

The central bank further said the strength of the recovery remains varied across countries mainly corresponding to their vaccination coverage, relaxation of containment measures and degree of policy support. 

“Overall, the balance of risks to the global growth outlook is tilted to the downside. This is attributed mainly to uncertainty over the path of the pandemic amid the emergence of variants of concern, and potential risk of heightened financial market volatility amid adjustments in monetary policy in major economies,” it stated.