Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) has cut the Overnight Policy Rate (OPR) by 25 basis points to 2.50%, on the back of weakened global economic conditions brought about by the ongoing coronavirus (Covid-19) outbreak.
The outbreak interrupted production and travel activity within the region which “led to greater risk aversion, resulting in tighter financial conditions and a resurgence in financial market volatility. Downside risks to the global growth outlook have increased, particularly in the near term,” said BNM.
The central bank foresees that growth, especially in the tourism-related and manufacturing sectors will be affected by the virus outbreak, particularly during the first quarter. Weakness within the agriculture sector is also expected to persist, reported Bernama.
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Thus, the ceiling and floor rates of the OPR’s corridor were likewise reduced to 2.75% and 2.25%, respectively.
This move is intended to “provide a more accommodative monetary environment to support the projected improvement in economic growth amid price stability,” said BNM.
BNM expects private and public sector activities to be supportive of growth for 2020.
“Household spending is expected to grow at a slower pace amid moderate employment and income growth. Investment activity is projected to record a modest recovery, underpinned by ongoing and new projects, both in the public and private sectors,” explained BNM.
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However, while domestic growth is expected to improve gradually in the second half of the year, there will still be key downside risks, mainly coming from the prolonged impact of the Covid-19 outbreak, as well as continued drawback in commodity-related sectors.
But “with further anticipated policy measures, these actions are expected to mitigate the economic impact of Covid-19,” added BNM.
As for headline inflation, BNM expects it to average higher but remain modest, depending on global oil and commodity price adjustments, as well as when domestic retail fuel price ceilings will be lifted.
Underlying inflation, on the other hand, is expected to be more moderate in the middle of limited demand pressures, notwithstanding continued expansion in economic activity.
“The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation,” assured BNM.
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