In line with the expectations of most economists, Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) maintained the overnight policy rate (OPR) at 3.0 percent during its latest meeting on Thursday (19 January), following a reduction of 25 basis points (bps) last July.
According to Standard Chartered Bank Malaysia’s Head of fixed income, currencies and commodities investment strategy, Manpreet Singh Gill, the central bank’s recent decision required weighing in the risk of capital outflows and keeping the inflation rate at a miniscule level.
Yesterday, the Department of Statistics’ latest data showed that the country’s inflation rate stood at 2.1 percent last year, which was at the lower end of the central bank’s forecast of 2.0 percent to 2.5 percent. But this is projected to be higher this year due to the anticipated hike in global oil prices.
“Inflation in Malaysia has come in low, which is good, but there is room to cut rates to support growth,” said Manpreet. However, if the OPR is reduced significantly and too quickly, amidst a hike in US dollar yields, it may end up causing more capital outflows.
“So I think BNM is really sort of balancing out these two factors, and given that we are already seeing signs of capital flows coming back [into Malaysia], we think that in some point in the year BNM will cut rates given the opportunity.”
As such, Manpreet believes that the central bank will keep a close watch on global capital flows, before deciding if they really need to slash the OPR or maintain the status quo.
Meanwhile, BNM said the current OPR level conforms with its objective to make sure that the country’s economic growth continues on a stable trajectory, in light of steady core inflation, and bolstered by the authorities’ efforts to uplift the economy.
Image sourced from Bank Negara Malaysia
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my
