OPR to remain at 3%, says Bank Negara

BANK Negara today announced that the overnight policy rate (OPR) will remain at 3% after its Monetary Policy Committee (MPC) meeting.

It has remained at 3% since May 2023. Before that it was at 2.75% in March 2023.

Headline and core inflation averaged 1.7% and 1.8% in the first quarter of 2024 respectively, the central bank added.

Looking forward, it said, inflation in 2024 is expected to remain moderate, broadly reflecting stable demand conditions and contained cost pressures.

“At the current OPR level, the monetary policy stance remains supportive of the  economy and is consistent with the current assessment of the inflation and  growth prospects. 

“The MPC remains vigilant to ongoing developments to  inform the assessment on the outlook of domestic inflation and growth. The MPC will ensure that the monetary policy stance remains conducive to sustainable economic growth amid price stability,” Bank Negara said in a statement. 

Bank Negara also said that the OPR was the highest at 3.50% in April 2006. During that time, the economy was growing steadily, CPI inflation was at 4.6% and a higher OPR was needed to manage the risk of higher prices.

Meanwhile the OPR was the lowest at 1.75% from July 2020 until May 2022 to support the economy during the Covid-19 pandemic. 

“In tough times, low interest rates make borrowing cheaper and lower the returns on savings. This spurs spending, boosts investments and protects jobs and income in times of crisis,” said the central bank.

In its statement, Bank Negara said it kept the OPR unchanged as this was in line with the health of the economy and to remain supportive of growth.

It is also to allow financing to continue to be available with sustained improvement in credit growth.

“In tough times, low interest rates make borrowing cheaper and lower the returns on savings. This spurs spending, boosts investments and protects jobs and income in times of crisis,” said the central bank.

Bank Negara added that the global economy continued to expand amid resilient labour markets in some countries and continued recovery in global trade. 

“Looking ahead, global  growth is expected to be sustained, as headwinds from tight monetary policy  and reduced fiscal support will be cushioned by positive labour market conditions and moderating inflation.”

For the Malaysian economy, the latest indicators point towards higher economic activity in the first quarter of 2024, driven by resilient domestic  expenditure and a positive turnaround in exports, it said. 

It also said that the ringgit currently does not reflect Malaysia’s economic fundamentals and growth prospects. 

“External factors, namely shifting expectations of major  economies’ monetary policy paths and ongoing geopolitical tensions, have led to heightened volatility in both capital flows and exchange rates across the region, including the ringgit. 

“The coordinated initiatives by the government and  Bank Negara Malaysia (BNM) with the government-linked companies (GLCs)  and government-linked investment companies (GLICs), and corporate  engagements have gained further traction, cushioning the pressure on the  ringgit.” –  The Vibes, May 9, 2024.