|The central bank said exports will continue to benefit from the recovery in the advanced economies and from regional demand, although its growth will be slower. Photo by Shahrin Yahya|
KUALA LUMPUR: Bank Negara Malaysia (BNM) has maintained the overnight policy rate (OPR) at 3.25%, with the decision hinged on continued steady growth in the Malaysian economy, stabilising inflation and the stability of international markets.
“The prospects are for the Malaysian economy to remain on a steady growth path. For Malaysia, economic activity has been supported by the continued growth in domestic demand and exports,” it said in a statement yesterday.
“Going forward, domestic demand is expected to moderate but will remain the key driver of growth. While private investment activity is projected to remain robust, private consumption is expected to moderate.”
The central bank said exports will continue to benefit from the recovery in the advanced economies and from regional demand, although its growth will be slower, partly reflecting the base effect in the second half of 2013.
Meanwhile, inflation is expected to remain relatively stable for the remainder of the year, as the effects of the price adjustments for utilities and energy have continued to diminish.
However, BNM noted that moving into next year, inflation is projected to increase to above its long-term average due to “domestic cost factors”. Nevertheless, it said, the absence of external price pressures and more moderate demand conditions are expected to mitigate the impact of these cost factors on the underlying inflation.
Analysts have noted that the implementation of the goods and services tax and subsidy rationalisation programme is likely to push inflation and the consumer price index higher, but the impact is likely to be temporary.
On the global front, BNM said the world economy is continuing to expand at a moderate pace although some advanced economies have shown an uneven growth performance.
It noted that the growth in Asia is supported by the continued expansion in domestic demand and improved external environment.
“In this environment, the international financial markets have remained relatively stable,” BNM said in the statement.
The central bank noted that further adjustment to the “degree of monetary accommodation” may be taken, following the Monetary Policy Committee’s monitoring and assessment of the risk balance of domestic growth and inflation as well as the destabilising financial imbalances.
Analysts had predicted that BNM will maintain the OPR. They had opined that BNM would not raise its interest rates despite Malaysia recording a 6.4% increase in gross domestic product growth in the second quarter of this year.
Malaysia’s industrial production index, however, recorded a dismal growth of 0.5% in July, compared with 7% in the previous month. Exports also contracted by 0.6% compared with the previous year, while imports declined by 0.7%.
BNM had on July 10 raised the OPR to the current 3.25%. Analysts expect the rate to be increased to 3.5% early next year.
The US Federal Reserve, meanwhile, had just announced that it will keep interest rates near zero for a “considerable time” until the United States completes its bond-buying stimulus programme.
This article first appeared in The Edge Financial Daily, on September 19, 2014.