The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has recently decided to cut the Overnight Policy Rate (OPR) to 2.75%. The ceiling and floor rates of the OPR corridor are also reduced to 3% and 2.5% respectively.
BNM said this move was a response to the global economy’s continued expansion at a moderate rate, with the recent indicators and latest dissipation of trade tensions pointing to improving global trade activity, reported The Borneo Post.
“Monetary easing across major economies in the second half of 2019 has helped ease financial conditions, and is expected to continue to support economic activity. However, downside risks remain due to geopolitical tensions and policy uncertainties in a number of countries,” said BNM.
“This could cause a resurgence of financial market volatility and weigh on the global growth outlook.”
BNM also revealed some of its projections for the Malaysian economy.
“For the Malaysian economy, latest indicators and supply disruptions in commodity-related sectors point to moderate expansion of economic activity in the fourth quarter. For 2019, growth will be within the projected range. For 2020, growth is expected to gradually improve, with continued support from household spending and better export performance,” it noted.
BNM expects overall investment activity to make a modest recovery, underpinned by new and ongoing projects in the private and public sectors.
However, it also cautioned that downside risks to growth remain.
These include uncertainty caused by geopolitical risks, heightened volatility in financial markets, various trade negotiations, weaker-than-expected growth of major trade partners and domestic factors which include delays in project implementations and weakness in commodity-related sectors.
“Headline inflation averaged at 0.7 per cent in 2019. The trajectory of headline inflation will be dependent on global oil and commodity price developments and the timing of the lifting of the domestic retail fuel price ceilings,” it added.
BNM then clarified further its basis for the adjustments.
“Underlying inflation is expected to remain broadly stable, reflecting the continued expansion in economic activity and the absence of strong demand pressures. The adjustment to the OPR is a pre-emptive measure to secure the improving growth trajectory amid price stability. At this current level of the OPR, the MPC considers the stance of monetary policy to be appropriate in sustaining economic growth with price stability.”