Bank Negara to assess impact of 100bps OPR increase before taking further action

KUALA LUMPUR: Bank Negara Malaysia (BNM) will assess the impact of raising the overnight policy rate (OPR) by 100 basis points (bps) in 2022 on the Malaysian economy before taking any further action, said assistant governor Fraziali Ismail.

He said that the OPR was gradually increased to 2.75 per cent and the central bank must evaluate its effects on the current state of the economy.

“We are on track to achieve the targets — for example, this year, for inflation to be between 2.8 per cent and 3.8 per cent and economic growth to be between four and five per cent,” he told reporters after the annual BNM Governor’s Address on the Malaysian Economy forum organised by the Malaysian Economic Association today.

Earlier in his keynote address, Fraziali said the monetary policy would continue to balance the risks to domestic inflation and economic growth and the Monetary Policy Committee (MPC) will continue to monitor the impact of the past OPR adjustments on the economy.

“So far, the impact of the past OPR adjustments on financial conditions has been orderly, no signs of excessive tightening in consumption and investment, signs of moderation in the strength of inflationary pressure amid normalisation of inflation expectations, but inflation remains elevated,” he said.

The MPC is scheduled to have its third meeting on May 2-3, 2023.

Fraziali said that further normalisation to the degree of monetary policy accommodation will be informed by evolving conditions, while at the same time, the MPC remains vigilant to cost factors, including those arising from financial market developments, that could affect the inflation outlook.

Price pressures may be more persistent than expected, he noted, and thus it is important to manage inflation in ensuring sustainable long-term growth.

“Any adjustment to the degree of accommodation will be informed by evolving global and domestic conditions and their implications on the overall outlook of domestic inflation and growth,” he added.

According to the BNM Economic and Monetary Review 2022, the MPC monetary policy considerations would focus on managing inflation risks while supporting sustainable economic growth in 2023, and similar to other economies, 2023 will be a challenging year for the Malaysian economy with a more moderate economic growth projected and inflation expected to remain elevated.

BNM governor Tan Sri Nor Shamsiah Mohd Yunus in the report said over-adjustments in monetary policy would negatively impact growth, while undershooting could lead to inflation expectations becoming unhinged with damaging effects on consumers’ purchasing power and the sustainability of economic growth.

“In this environment — consistent with the BNM’s legal mandate to promote price stability while giving due regard to developments in the economy — the MPC has raised the OPR at a measured and gradual pace.

“Given that monetary policy works with a lag, the recent pauses allow the MPC to assess the impact of successive OPR adjustments, along with evolving conditions that affect the outlook of growth and inflation,” she was quoted as saying in the report.

Image by: The Star

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