BNM keeps OPR unchanged at 2.75%

• This is the second consecutive time the central bank maintained its benchmark interest rate after four straight hikes last year by a cumulative 100 basis points to tame inflation and respond to tightening fiscal policy by the US Federal Reserve.

KUALA LUMPUR (March 9): Bank Negara Malaysia (BNM) has decided to maintain its overnight policy rate (OPR) at 2.75%, as inflation is expected to moderate in 2023 with upward pressures remaining partly contained by price controls and fuel subsidies.

This is the second consecutive time the central bank maintained its benchmark interest rate after four straight hikes last year by a cumulative 100 basis points to tame inflation and respond to tightening fiscal policy by the US Federal Reserve.

“Headline and core inflation are expected to moderate over the course of 2023, but will continue to be elevated amid lingering demand and cost factors.

“The balance of risk to the inflation outlook is tilted to the upside and continues to be highly subject to any changes to domestic policy on subsidies and price controls, as well as global commodity price developments,” said BNM in a statement.

At the current OPR level, BNM said the stance of monetary policy “remains accommodative and supportive of economic growth”.

BNM said the Monetary Policy Committee (MPC) will continue to assess the impact of the cumulative OPR adjustments, given the lag effects of monetary policy on the economy.

“The MPC remains vigilant to cost factors, including those arising from financial market developments, that could affect the inflation outlook. Further normalisation to the degree of monetary policy accommodation would be informed by the evolving conditions and their implications to the domestic inflation and growth outlook.

“The MPC will continue to calibrate the monetary policy settings that balance the risks to domestic inflation and sustainable growth,” it said.

Although Malaysia's economy has grown strongly by 8.7% last year, BNM said “downside risks continue to stem mainly from global developments, including from weaker-than-expected growth outturns or much tighter and more volatile global financial conditions”.

The central bank expects the economy to moderate this year amid a slower global economy, and the growth will remain driven by domestic demand, as household spending will be underpinned by sustained improvements in employment and income prospects.

“Tourist arrivals are expected to continue rising, further lifting tourism-related activities. The continued progress of multi-year infrastructure projects will support investment activity.

“The implementation of projects from the recently re-tabled Budget 2023 would provide upside risks to the domestic growth outlook,” it said.

BNM also noted there were some positive developments in the global economy with the reopening of China and better-than-expected growth outturns in major economies, supported by resilient domestic demand.

“Nevertheless, the global economy continues to be weighed down by elevated cost pressures and higher interest rates. Headline inflation moderated slightly from high levels in recent months, but core inflation remained above historical averages.

“Some central banks are expected to continue raising interest rates to manage inflationary pressures. This will continue to pose headwinds to the global growth outlook,” it said.

BNM opined that the global growth outlook remains subject to downside risks, mainly from an escalation of geopolitical tensions, higher-than-anticipated inflation outturns, and a sharp tightening in financial market conditions.