BNM Holds Interest Rates Steady!

The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has chosen to maintain the Overnight Policy Rate (OPR) at 3%. The decision comes against the backdrop of a global economy experiencing expansion, primarily driven by robust domestic demand amidst favourable labour market conditions.

While signs of recovery are evident in the electrical and electronics (E&E) sector, global trade remains subdued due to the ongoing shift from goods to services and persistent trade restrictions. Despite China showing improvement in its economy, the recovery remains modest, largely influenced by weaknesses in the property market.

Notably, monetary policies worldwide are expected to remain relatively tight in the near term, even as most central banks have peaked in their tightening cycles. The global growth outlook, however, remains susceptible to risks, particularly from geopolitical tensions, unexpected inflation spikes and increased volatility in global financial markets.

For Malaysia, the fourth-quarter advance estimates for gross domestic product (GDP) indicate overall growth for 2023 at 3.8% (DOSM). Looking ahead to 2024, growth is anticipated to improve to 4%-5%, buoyed by export recovery and resilient domestic expenditure. Positive factors include sustained employment and wage growth, expected improvement in tourist arrivals and spending, and continued progress in multi-year projects in both private and public sectors.

Inflation in Malaysia moderated in the fourth quarter, driven by lower cost pressures amid stabilising demand conditions. Headline and core inflation for 2023 averaged at 2.5% and 3.0%, respectively. The outlook for 2024 suggests modest inflation at 2.1% to 3.6%, influenced by stable cost and demand conditions. However, risks to the inflation outlook remain, contingent on changes in domestic policy, global commodity prices and financial market developments.

The key setbacks are exchange rate and cost of living issues. Exchange rate should improve to RM4.40 to USD1, if developed countries ease their tightening efforts. And cost of living issues are compounded by self-inflicted wounds like increase in water tariffs, electricity and perhaps petrol. The current government needs to learn to introduce new tariffs gradually and in a measured way so as to survive politically.

Reference:

BNM holds interest rates steady amid global economic trends, Eynez Syazmeena, Focus Malaysia, 24 January 2024