KUALA LUMPUR: Bank Negara Malaysia’s (BNM) decision to maintain its overnight policy rate (OPR) at 1.75% in its first Monetary Policy Committee (MPC) meeting of 2022 is not a surprise move and very much a neutral-to-positive assessment, based on yesterday’s statement.
Bank Islam Malaysia Bhd (BIMB) chief economist Mohd Afzanizam Abdul Rashid said judging from the statement, the central bank appeared to be comfortable with the state of the economy as the reopening of the economy would continue to occur amid the effective vaccination rollout.
“Having said that, BNM continues to put caveat in their assessment by saying the downside risks remain clearly visible and policy decision will hinge upon the incoming data.
“Catalysts for higher inflation would be from supply disruption and improving demand condition but the resource slack in the economy, in particular the labour market, would put a lid on the inflationary pressures,” he told Bernama.
Earlier, BNM announced that the MPC decided to retain the OPR at status quo on the view that the global economy continues to recover, supported by manufacturing and trade activity.
It said the committee considered the current stance of monetary policy to be appropriate and accommodative.
The central bank said labour market conditions have also improved in many countries, although several countries reintroduced measures to curb ongoing Covid-19 resurgences, causing some moderation in the pace of recovery in domestic activity, especially services.
Inflation remains elevated in a number of countries, driven by both supply and demand factors, it said.
“Going forward, continued progress in vaccination coverage, advancements in vaccine efficacy, and the availability of anti-viral treatments will allow for better management of the pandemic, hence, supporting global growth prospects.
“The global growth outlook will continue to be affected by uncertainties over the emergence of new variants of concern, risks of prolonged global supply disruptions, and risks of heightened financial market volatility amid adjustments in monetary policy in major economies,” it said in a statement.
Mohd Afzanizam said BIMB has maintained its call that the OPR will be raised by 25 basis points in the second half of this year.
Similarly, MIDF Amanah Investment Bank Bhd said the current focus of BNM’s monetary policy setting is to ensure a sustainable recovery of Malaysia’s economy, especially coming out from the long containment measures imposed last year.
With the rate of inflation hovering within BNM’s forecast, the research firm opined that there is less pressure for the central bank to quickly shift towards policy tightening.
“At this point, we expect the policy normalisation will likely be carried out in the second half of 2022.
“However, the decision will be subject to the stability of economic growth, the pace of price increases and further improvement in macroeconomic conditions, particularly a continued recovery in the labour market and growing domestic demand,” it said in a note.
MIDF said from a medium-term perspective, the policy rate normalisation is needed to avert risks that could destabilise the future economic outlook such as the persistently high inflation and a further rise in household indebtedness.
The next MPC meeting is scheduld for March 3, 2022. The key interest rate has been kept at 1.75% since July 2020, the lowest on record since 2004. – Bernama
