KUALA LUMPUR – Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) has decided to maintain the Overnight Policy Rate (OPR) at 1.75% as the global economy continues to recover, led by improvements in manufacturing and export activity.
In a statement today, the central bank said the OPR decision also came after the latest indicators in Malaysia pointed towards significant improvement in economic activity in the third quarter.
“The introduction of targeted measures to contain Covid-19 in several states could affect the momentum of the recovery in the fourth quarter.
“Nonetheless, growth for the year 2020 is expected to be within the earlier forecasted range,” it said.
For 2021, BNM said economic activity is projected to improve further, underpinned by the recovery in global demand, turnaround in public and private sector expenditure amid continued support from policy measures, as well as higher production from existing and new facilities.
Nevertheless, it noted that the pace of recovery would be uneven across sectors, with economic activity in some industries remaining below pre-pandemic levels, and a slower improvement in the labour market.
“Downside risks to the outlook remain, stemming mainly from ongoing uncertainties surrounding the pandemic globally and domestically,” it said.
On headline inflation, the central bank said in line with earlier assessments, the headline inflation is likely to average negative this year given the substantially lower global oil prices.
“For 2021, headline inflation is projected to average higher.
“The outlook, however, will continue to be significantly affected by global (crude) oil and commodity prices,” it said.
Underlying inflation is expected to remain subdued in 2021 amid continued spare capacity in the economy, it added.
On the external front, BNM said the latest indicators showed that economic activity picked up in most advanced and regional economies, with a more pronounced recovery momentum in China.
However, it noted that recent resurgences in Covid-19 cases have caused some major economies to re-introduce containment measures, although generally less restrictive than earlier measures.
“This suggests that the global economic recovery will likely remain uneven in the near term,” it added.
According to BNM, financial conditions have improved, although risk aversion remains elevated.
“The overall outlook remains subject to downside risks, primarily due to the risk of further resurgence of Covid-19 infections which could lead to weaker business, employment and income conditions,” it added.
Overall, the central bank said the MPC considered the stance of monetary policy to be appropriate and accommodative.
“The cumulative 125 basis points reduction in the OPR this year will continue to provide stimulus to the economy,” it said.
BNM said the MPC will continue to assess evolving conditions and their implications on the overall outlook for inflation and domestic growth, and the central bank remains committed to utilise its policy levers as appropriate to create enabling conditions for a sustainable economic recovery.
Meanwhile, the central bank said the meeting also approved the schedule of MPC meetings for 2021.
“In accordance with the Central Bank of Malaysia Act 2009, the MPC will convene six times during the year.
“The meetings will be held over two days, with the Monetary Policy Statement released at 3pm on the second day of the MPC meeting,” it said. – Bernama, November 3, 2020
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