KUALA LUMPUR (Feb 10): Bank Negara Malaysia’s deliberation over how much more to raise rates or how long to hold them at the current level hinges on how previous rate increases impacted the economy.
BNM governor Tan Sri Nor Shamsiah Mohd Yunus said the central bank will assess and take stock of the impact of the past cumulative increases of the overnight policy rate (OPR) on the economy, before deciding on the next course of monetary decision.
The increases in the OPR were intended to moderate demand pressures on prices and thus inflation, with further monetary policy normalisation will be made based on evolving global conditions and its implication to domestic inflation and growth outlook.
“It is important to remember that monetary policy works with a lag and will take some time before we start to see demand pressure easing.
“The decision to maintain the OPR for now allows us to assess the impact of our past OPR adjustment to inflation and economy. This would give us a better clarity on inflation and economic outlook amid the evolving global economic environment and how we act next,” the governor said at the Economic and Financial Developments for the fourth quarter of 2022 briefing on Friday (Feb 10).
The central bank made four OPR adjustments since May 2022, before deciding to keep the key rates unchanged at 2.75% in the January Monetary Policy Committee meeting.
Acknowledging that the OPR has limited influence in addressing the cost-push price pressures, Nor Shamsiah said it is still an important tool to manage demand pressures.
“We have been seeing demand pressures since the economy reopened which contributed to the persistence and pervasiveness of domestic inflation.
“High inflationary pressures are very damaging to the economy and cause even deeper hardship for the rakyat. It would hurt everyone’s purchasing power especially for the low-income group regardless of whether you have a loan or not,” she said.
She added that BNM has moved in a measured and gradual pace on monetary decisions, especially when compared to other countries. At the current rate, she believes Malaysia’s monetary policy remains accommodative and supportive of the economy.
“We acknowledge the delicate balance between inflation and growth risk, especially in the context of a challenging environment that we are currently facing,” she said.
Going forward, BNM will continue to closely monitor the strength of domestic demand conditions and risk to domestic inflation and sustainable growth.
“I would like to stress especially on social media that we do not set our OPR based on what other central banks decide on their monetary policy. In line with our mandate, we continue to calibrate monetary policy based on ensuring sustainable domestic growth in an environment of price stability,” the governor said.