The Monetary Policy Committee of Bank Negara Malaysia (BNM) has kept the Overnight Policy Rate (OPR) unchanged at 1.75%, reported The Sun Daily.
This comes as Malaysia’s latest indicators showed significant improvement in economic activity during the third quarter, said the committee.
BNM cautioned that the momentum of recovery may be affected by the roll-out of targeted measures to curb the spread of COVID-19 in several states in the fourth quarter.
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Nonetheless, the central bank expects this year’s growth to hover within its earlier forecast range, with the economic activity for next year forecasted to improve further.
“This will be underpinned by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, and higher production from existing and new facilities,” said BNM as quoted by The Sun Daily.
However, the pace of recovery may be uneven across sectors. In fact, some industries may see economic activity remain below pre-Covid-19 levels, while the labour market may post slower improvement.
Headline inflation is forecasted to average negative this year, considering the substantially lower global oil prices, and average higher next year.
“The outlook, however, will continue to be significantly affected by global oil and commodity prices. Underlying inflation is expected to remain subdued in 2021 amid continued spare capacity in the economy,” it said.
Overall, the MPC believes the monetary policy stance is appropriate and accommodative, adding that this year’s cumulative 125 basis point reduction in the OPR will continue to provide stimulus to the economy.
Moving forward, the committee will continue to assess evolving conditions as well as their implications on the overall outlook for domestic growth and inflation.
OCBC Treasury Research said BNM appears to be striking a balance on multiple fronts as the central bank acknowledges the downside risks, while noting that the outlook remains brighter than what may have been suggested in the headlines.
“Putting all the different pieces of the puzzle together, the picture looks to us to be one of a central bank that would not hesitate to act by cutting its policy rate, if it deems that the downside risks it mentioned start to weigh on growth momentum more visibly,” it said as quoted by The Sun Daily.
