Bank Negara raises OPR by 25bps to 2.5%, as expected

KUALA LUMPUR: Bank Negara Malaysia (BNM)’s Monetary Policy Committee (MPC) raised its overnight policy rate (OPR) by 25 basis points (bps) to 2.5% on Thursday (Sept 8). In line with expectations for further normalization of monetary policy as the country’s economic growth and inflation gain momentum.

This is MPC’s third consecutive 25bps OPR hike this year. In line with 17 economists’ forecasts polled by Bloomberg, bringing the year-to-date increase to 75bps.
The ceiling and floor rates of the OPR’s corridor correspondingly increased to 2.75% and 2.25% respectively, according to a statement by the central bank.

The OPR increase came as Malaysia’s 2022 gross domestic product (GDP) growth outlook also continued to improve. With Bloomberg consensus forecast raised to 6.8%, from 6.2% in August.

In its statement, BNM said the MPC is not on any pre-set course. And will continue to assess evolving conditions and their implications on the overall outlook for domestic inflation and growth.

MPC’s latest OPR rate of 2.5% inched closer to its pre-pandemic level of 3.0% and closed its gap to the 2.25%-2.5% US Fed Fund rate. Which is widely expected to be raised by another 75bps later this month.

BNM said going forward, indicators point to continued growth, underpinned by support from private-sector spending.

Nevertheless, the central bank said external demand is expected to moderate following softening global growth. Further, the increased volatility expected in the global financial and foreign exchange markets is not expected to derail Malaysia’s growth, it said.

Going forward, BNM said downside risks to the domestic economy continue to stem from weaker-than-expected global growth, further escalation of geopolitical conflicts, and worsening supply chain disruptions.

“Global growth is expected to face challenges from the impact of monetary policy tightening in most economies, and pandemic management measures in China.

“The growth outlook is subject to downside risks, including elevated cost pressures, the potential energy crisis in Europe, and sharp tightening in financial market conditions,” it said.

On inflation, BNM said the headline consumer price index (CPI) is projected to peak in the third quarter of 2022 (3Q2022). Before moderating thereafter, due to dissipating base effects and in line with the expected easing of global commodity prices.

“Underlying inflation, as measured by core inflation, is expected to average closer to the upper end of the 2.0%-3.0% forecast range in 2022. With some signs of demand-driven pressures amid the high-cost environment.

The MPC raised OPR in May for the first time in two years after maintaining the benchmark interest rate at a historical low of 1.75% since July 2020 to cushion the economic impact of the pandemic.