This is the 2nd time the central bank raised the OPR, after increasing it in a similar quantum in May.

by ANIS HAZIM / pic TMR

BANK Negara Malaysia’s (BNM) Monetary Policy Committee has decided to increase the Overnight Policy Rate (OPR) by 25 basis points to 2.25% on the back of debilitating inflationary pressures.

The ceiling and floor rates of the OPR’s corridor are correspondingly increased to 2.5% and 2%, respectively, the central bank said in a statement today.

Read more: OPR hike on the cards this week?

Despite some easing in global supply chain conditions, BNM noted that inflationary pressures have continued to increase mainly due to elevated commodity prices and strong demand conditions.

“The reopening of the global economy and the improvement in labour market conditions continue to support the recovery of economic activity.

“However, these have been partly offset by the impact from rising cost pressures, the military conflict in Ukraine and strict containment measures in China,” BNM said in the statement.

“Consequently, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures.

“Going forward, the pace of global growth is expected to moderate, and will continue to be affected by elevated cost pressures, the conflict in Ukraine, global supply chain conditions and financial market volatility,” BNM added.

BNM views that the Malaysian economic activity continued to strengthen in recent months as exports and retail spending indicators affirm the positive growth momentum, supported by the transition to endemicity.

BNM highlighted that the unemployment rate has declined further with higher labour participation and improving income prospects.

“Looking ahead, while external demand is expected to moderate, weighed by headwinds to global growth, economic growth will be supported by firm domestic demand,” it stated.

With the reopening of international borders on April 1, BNM foresees that this would facilitate the recovery in tourism-related sectors.

Meanwhile, Malaysian investment activity and prospects continue to be supported by the realisation of multi-year projects.

“However, downside risks to growth continue to stem from weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions,” it added.

Year-to-date, BNM said headline inflation has averaged 2.4%, while it is projected to remain within the 2.2% to 3.2% forecast range for the year, and may be higher in some months due mainly to the base effect from electricity prices.

“Underlying inflation, as measured by core inflation, is expected to average between 2% and 3% in 2022 as demand continues to improve amid the high-cost environment,” it added,

Nevertheless, the bank said the extent of upward pressures on inflation will remain partly contained by existing price controls, fuel subsidies and the continued spare capacity in the economy.

“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,” it further said.