Bank Negara explains first OPR cut in seven years

KUALA LUMPUR: Bank Negara Malaysia (BNM) yesterday explained that its first rate cut in seven years was to ensure that the monetary policy steers the domestic economy on a steady growth path amidst global uncertainties.
In a statement released following its Monetary Policy Committee (MPC) meeting yesterday, the central bank explained that while the domestic economy remains on track to expand in 2016-2017, the uncertainties in the global environment could weigh on the country’s growth prospects.
The global economy continues to record growth at a more moderate pace, across major advanced and emerging market economies.
While in Asia, persistent weakness in the external sector has weighed on growth, although domestic demand remains supportive. BNM said looking ahead, there are increasing signs of moderating growth momentum in the major economies.
“Global growth prospects have also become more susceptible to increased downside risks in light of possible repercussions from the EU referendum in the United Kingdom. International financial markets could also be subject to greater volatility going forward. In this light, global monetary conditions are expected to remain highly accommodative,” the central bank added.
BNM remained bullish on domestic demand however, stating that it will continue to be the main driver of growth, with private consumption supported by growth in income and employment, and measures implemented by the government.
“While investment in the oil and gas sector is moderating, overall investment is expected to be supported by the on-going implementation of infrastructure projects and capital spending in the manufacturing and services sectors. Exports are projected to remain weak following more subdued demand from Malaysia’s key trading partners,” BNM said.
Inflation was lower as the impact from the Goods and Services Tax (GST) implemented in April 2015 lapsed and is expected to remain stable in an environment of low global energy and commodity prices and generally subdued global inflation.
“Consequently, inflation is projected to be lower at 2 – 3% in 2016, compared to an earlier projection of 2.5 – 3.5%, and continue to remain stable in 2017,” BNM said.
It added that overall domestic financial conditions have remained stable since the previous MPC meeting with financial markets continuing to function in an orderly manner, with risks of destabilising financial imbalances receded.
“Both macro and micro prudential measures as well as supervisory oversight have resulted in more prudent lending standards and contained speculative activities in the property market,” BNM said.
The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.