BNM keeps OPR at 3% to support economic growth

All 30 economists in a recent Reuters poll had predicted BNM would leave the OPR unchanged at 3%.

PETALING JAYA: In a widely anticipated move, Bank Negara Malaysia (BNM) has kept the overnight policy rate (OPR) at 3% following the conclusion of its two-day Monetary Policy Committee (MPC) meeting today.

In a statement, the central bank said at the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.

“The MPC remains vigilant to ongoing developments to inform the assessment on the outlook of domestic inflation and growth.

“The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability,” it said.

For the Malaysian economy, it said the latest indicators point towards higher economic activity in the first quarter of 2024, driven by resilient domestic expenditure and a positive turnaround in exports.

Going forward, the recovery in exports is expected to gather momentum supported by the global tech upcycle and continued strength in non-electrical and electronics goods.

Tourist arrivals and spending are also poised to rise further while continued employment and wage growth remain supportive of household spending, the statement added.

BNM said investment activity would be supported by the ongoing progress of multi-year projects in both the private and public sectors, the implementation of catalytic initiatives under the national master plans, as well as the higher realisation of approved investments.

The growth outlook is subject to downside risks from weaker-than-expected external demand, and larger declines in commodity production, it said.

Headline and core inflation averaged 1.7% and 1.8% in the first quarter of 2024 respectively.

Looking forward, inflation in 2024 is expected to remain moderate, broadly reflecting stable demand conditions and contained cost pressures.

The outlook for the rest of the year is dependent on the implementation of domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.

After incorporating the potential impact of subsidy rationalisation, headline and core inflation are projected to average between 2%-3.5% and 2%-3% for the year respectively.

BNM last raised the OPR from 2.75% to 3% in May 2023, to normalise monetary accommodation as well as to manage persistent inflation. It has held the benchmark rate steady since then.

The central bank had slashed the OPR to its lowest ever at 1.75% in July 2020, in the aftermath of the Covid-19 pandemic. BNM subsequently reversed course and hiked the OPR by a cumulative 125 basis points between May 2022 and May 2023.

The MPC’s decision to keep the interest rate steady was widely expected. In a recent Reuters poll, all 30 economists predicted BNM would leave the OPR unchanged.

While BNM is not forecast to hike again, the economists do not expect it to cut anytime soon. Among economists who had a long-term view, 23 of 25 expected no change before end-2024, Reuters said.

Similarly, a Bloomberg poll revealed all 24 economists surveyed expected BNM to keep the OPR unchanged following March’s milder-than-expected inflation data, up 1.8% year-on-year despite a 2% increase in the sales and service tax (SST) to 8%.